Tuesday, November 5, 2019

Malaysia maintains rate, accommodative policy stance

     Malaysia's central bank kept its benchmark interest rate unchanged for the third time and confirmed its monetary policy stance remains accommodative and it will continue to assess the balance of risks to growth and inflation to ensure sustainable growth and price stability.
     Bank Negara Malaysia (BNM) left its Overnight Policy Rate (OPR) at 3.0 percent and said growth in Malaysia this year was expected to be within its forecast and the pace would be sustained going into 2020.
     However, it added this projection was subject to downside risks from uncertainties in the global economy and weakness in commodity-related sectors.
     BNM has forecast 2019 growth in a range of 4.3 to 4.8 percent and said the latest data were in line with its expectations, "suggesting moderate expansion of economy activity for the third quarter."
     Malaysia's gross domestic product rose to an annual rate of 4.9 percent growth in the second quarter, the strongest rate since 5.3 percent in the first quarter of 2018.
     Malaysia was among the first wave of leading central banks that loosened their policy in May this year in response to the slowing global economy along with the Philippines and New Zealand, following on the heels of India, which already embarked on an easing cycle in February.
     The rate cut in May was BNM's first since July 2016.
     BNM said the global economy was growing at a more moderate pace, "with the slowdown becoming more synchronized across both the advanced and emerging economies," and while geopolitical tensions, policy uncertainty and unresolved trade disputes could further weigh on the growth outlook, monetary easing and other policy measures are expected to provide support.
     As in most countries, inflation in Malaysia remains low and BNM confirmed its expects inflation to remain modest in 2020 though higher on average.
     Inflation in September eased to 1.1 percent from 1.5 percent in August.
     Malaysia's ringgit continued its recent firming in response to the policy decision to around 4.13 to the U.S. dollar, up 1.5 percent today, to be up 2.2 percent since this year's low of 4.22 in early September. The ringgit is now 0.5 percent higher than the start of the year.

     Bank Negara Malaysia released the following press release:

"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 is expanding at a more moderate pace, with the slowdown becoming more synchronised across both the advanced and emerging economies. There is also evidence of the weak global trade affecting domestic demand, particularly investment activity. Going forward, geopolitical tensions, policy uncertainty and the unresolved trade disputes could exacerbate financial market volatility and further weigh on the global growth outlook. Monetary easing and other policy measures are expected to provide some support to growth.
For the Malaysian economy, latest indicators are in line with expectations, suggesting moderate expansion of economic activity for the third quarter. Going forward, growth is expected to remain anchored by firm private sector expenditure. While private investment is projected to remain modest, household spending will be supported by continued employment and wage growth. The recent Government measures will provide additional impetus to economic activity. On the external front, while exports will continue to be affected by slower global demand, this will be partly mitigated by its diversified structure. Overall, growth of the Malaysian economy is expected to be within projections in 2019 and the pace sustained going into 2020. This projection remains subject to downside risks, mainly stemming from uncertainties in global economic and financial conditions as well as weakness in commodity-related sectors.
Average headline inflation in 2019 will be low. In 2020, headline inflation is expected to average higher but remain modest. This reflects mainly the lapse in the impact from consumption tax policy changes, the lifting of the domestic retail fuel price ceiling amid the relatively subdued outlook on global oil prices, and measures in place to contain food prices. The trajectory of headline inflation will, however, be dependent on global oil and commodity price developments. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.
At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC will continue to assess the balance of risks to domestic growth and inflation, to ensure that the monetary policy stance remains conducive to sustainable growth amid price stability.
The meeting also approved the schedule of MPC meetings for 2020. 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."


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