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Bank Negara, as anticipated by the market, decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.25%, at the monetary policy committee (MPC) meeting.
The central bank has decided to adjust the degree of monetary accommodation amid “firm growth prospects and with inflation remaining above its long-run average,” according to today’s monetary policy statement.
“This normalisation of monetary conditions also aims to mitigate the risk of broader economic and financial imbalances that could undermine the growth prospects of the Malaysian economy.
“At the new level of the OPR, the stance of monetary policy remains supportive of the economy,” the statement read.
In the lead up to today’s announcement, nearly all economists attached to local banks expected the OPR to go up by 25 basis points to 3.25%.
Bank Negara’s May monetary policy statement gave forward guidance that the “degree of monetary accommodation may need to be adjusted” suggesting to economists that interest rates were on the way up, and sooner rather than later.
The hawkish mode of the central bank might continue into the next monetary policy meeting. “Further review of the degree of monetary accommodation will depend on the MPC’s assessment of the balance of risks surrounding the outlook for domestic growth and inflation.
“At the same time, the MPC will also continue to monitor for risks of destabilising financial imbalances,” Bank Negara said.
“For Malaysia, latest indicators point to continued strength in exports and private sector activity. Going forward, the overall growth momentum is expected to be sustained.
“Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Investment activity is projected to remain robust, led by the private sector.
“Private consumption will be supported by stable income growth and favourable labour market conditions. The prospects are therefore for the Malaysian economy to remain firmly on a steady growth path,” added the central bank statement.
“Inflation has been relatively stable as the effects of the price adjustments for utilities and energy continue to moderate. Demand driven inflation remains contained. Looking ahead, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors.”
The OPR floor and ceiling rates of OPR have been correspondingly raised to 3% and 3.5% respectively.
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