Voicing confidence about the outlook for the global and domestic economy in 2018, Bank Negara Malaysia (BNM) said the country's economic growth had "become more entrenched," with growth momentum spilling over from the external sector to the domestic economy as firms invest in production facilities, raise wages and hire more workers.
"For 2018, domestic demand is expected to remain the key source of growth," BNM said, adding overall growth is expected to remain strong next year following better-than-expecteed growth in 2017.
Malaysia's economy expanded by a higher-than-expected annual rate of 5.8 percent in the second quarter of this year, up from 5.6 percent in the first quarter.
In August the central bank said growth this year will probably exceed the forecast of 4.8 percent. Growth in 2016 was estimated at 4.2 percent.
BNM, which in July last year cut its rate for the first time since March 2009, expects inflation this year to be in the upper end of its forecast range and then moderate next year.
However, the central bank added that oil prices will determine the trend in inflation and underlying inflation, as measured by core inflation, will be sustained by robust domestic demand.
Malaysia's headline inflation rate rose to 4.3 percent in September from 3.7 percent.
After tumbling in the immediate aftermath of last year's election of Donald Trump as U.S. president, Malaysia's ringgit has been appreciating this year and was trading at 4.19 to the U.S. dollar today, up just over 7 percent this year.
Bank Negara Malaysia issued the following statement:
"At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.
The global economy continues to strengthen. Growth has become more entrenched and synchronised across regions. Global trade has picked up significantly. Amid the sustained growth performance, economic slack is diminishing in the advanced economies. In Asia, growth is driven by sustained domestic activity and strong external demand. Financial markets have also been relatively calm in the recent period. For 2018, the global economy is projected to experience sustained growth. While there are risks arising from geopolitical and policy developments in major economies, economic prospects are expected to remain favourable.
For Malaysia, economic growth has become more entrenched. Both the domestic and external sectors continue to register strong performance. Growth momentum has been lifted by stronger spillovers from the external sector to the domestic economy as firms invest in productive capacity, raise wages and hire more workers. For 2018, domestic demand is expected to remain the key source of growth. Private consumption will remain the largest driver of growth, supported by continued improvements in income and overall labour market conditions. Investment will be sustained by infrastructure projects and higher capital investment in the manufacturing and services sectors. The external sector will provide additional impetus to the economy. Overall, the assessment is for growth to remain strong in 2018.
Domestic inflation has been driven mostly by movements in global oil prices. Consequently, headline inflation increased to 4.3% in September, arising from higher global prices of refined oil caused by disruptions in the global supply. For 2017 as a whole, headline inflation is expected to be at the upper end of the forecast range. Moving into 2018, headline inflation is projected to moderate on expectations of a smaller effect from global cost factors. Nevertheless, the trend of headline inflation will be dependent on future global oil prices which remain highly uncertain. Underlying inflation, as measured by core inflation, will be sustained by robust domestic demand.
The domestic financial markets have been resilient. The ringgit has strengthened to better reflect 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.
At the current level of the OPR, the stance of monetary policy remains accommodative. Given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation. This is to ensure the sustainability of the growth prospects of the Malaysian economy.
The meeting also approved the schedule of MPC meetings for 2018. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year. The meetings will be held over two days, with the Monetary Policy Statement released at 3 p.m. on the second day of the MPC meeting.
Schedule of Monetary Policy Committee Meetings for 2018
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MPC Meeting No.
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Dates
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1st
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24 and 25 January 2018 (Wednesday and Thursday)
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2nd
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6 and 7 March 2018 (Tuesday and Wednesday)
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3rd
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9 and 10 May 2018 (Wednesday and Thursday)
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4th
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10 and 11 July 2018 (Tuesday and Wednesday)
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5th
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4 and 5 September 2018 (Tuesday and Wednesday)
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6th
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7 and 8 November 2018 (Wednesday and Thursday)
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