Bank Negara still sanguine about prospects for economy

It says current monetary policy conducive to steady growth

PETALING JAYA: Bank Negara has kept the benchmark interest rate unchanged at 3.25% after raising it two months ago for the first time since July 2014.

The central bank announced that policymakers decided to maintain the overnight policy rate (OPR) at 3.25% as the current level of monetary policy remains conducive to steady economic growth and a gradual slowdown in inflation.

The decision came at a time when the market expected the US Federal Reserve to raise interest rates four times this year, with the first for the year to come when US policymakers meet in about two weeks. Also, major central banks have signalled tighter monetary policy conditions.

Bank Negara voiced its optimism about the Malaysia’s economic prospects in a statement released after the meeting of its monetary policy committee (MPC), noting that growth remains anchored by private sector spending, while inflation this year was expected to moderate.

“Looking ahead, growth prospects will be sustained by the positive global growth outlook and spillovers from the external sector to the domestic economy.

“Domestic demand will remain the key driver of growth, underpinned by favourable income and labour market conditions, spend- ing on new and ongoing infrastructure projects and sustained capital investment by firms in the manufacturing and services sectors,” it said.

As for inflation, Bank Negara projected it to average lower in 2018, on expectations of a smaller effect from global cost factors, citing a stronger ringgit that could help mitigate import costs.

The last time Bank Negara revised the OPR was in January when it increased it by 25 basis points to 3.25%.

According to Bank Negara, while global energy and commodity prices are expected to trend higher in 2018, the increase will be at a moderate pace relative to the previous year.

“However, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain.

“Underlying inflation, as measured by core inflation, is also projected to moderate due to improving labour productivity and ongoing investments for capacity expansion,” it said.

The central bank said the domestic financial markets remained resilient.

“The broad appreciation of the ringgit in the past year better reflects the economic fundamentals.

“Banking system liquidity remains sufficient with financial institutions continuing to operate with strong capital and liquidity buffers. The growth of financing to the private sector has been sustained and is supportive of economic activity,” it explained.

Bank Negara said the MPC would continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation in deciding the next policy move.

The MPC will be meeting on May 10. Most analysts expected Bank Negara to keep the OPR unchanged in the upcoming MPC meeting.

In a separate announcement, the central bank said its international reserves remained stable at US$103.7bil (RM404.7bil) as at Feb 28, little changed from US$103.6bil on Feb 15.

The central bank said its prevailing reserves position was sufficient to finance 7.2 months of retained imports and was 1.1 times the short-term external debt.

The broad appreciation of the ringgit in the past year better reflects the economic fundamentals. Bank Negara