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BNM’s decision on Overnight Policy Rate (OPR)

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This is about the Overnight Policy rate decision today.

To the ones who were worried that they would get ever lower Fixed Deposit rate after today, you should feel relieved. To the ones who had hoped to have a lower monthly home loan repayment, you would not get it, currently. Bank Negara Malaysia (BNM) in its Monetary Policy Committee (MPC) meeting on 20th January 2021 has decided that the Overnight Policy Rate (OPR) will be maintained at 1.75 percent.

Full press release from BNM as below:

— start —

Monetary Policy Statement

Embargo : Not for publication or broadcast before 1500 on Wednesday, 20 January 2021
20 Jan 2021

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75 percent.

The global economy continues to recover, led by improvements in manufacturing and export activity. However, the recent resurgences of COVID-19 cases and the subsequent containment measures have affected economic activity in several major economies. The expedited roll-out of mass vaccination programmes, together with ongoing policy support, are expected to lift global growth prospects going forward. Financial conditions also remain supportive. The overall outlook remains subject to downside risks, primarily if there is further resurgence of COVID-19 infections and delays in mass inoculation against COVID-19.

For Malaysia, the resurgence in COVID-19 cases and the introduction of targeted containment measures has affected the recovery momentum in the fourth quarter of 2020. As a result, growth for 2020 is expected to be near the lower end of the earlier forecasted range. For 2021, while near-term growth will be affected by the re-introduction of stricter containment measures, the impact will be less severe than that experienced in 2020. The growth trajectory is projected to improve from the second quarter onwards.

The improvement will be driven by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new manufacturing and mining facilities. The roll-out of vaccines in the coming months will also lift sentiments. Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the dynamics of the pandemic and potential challenges that might affect the roll-out of vaccines both globally and domestically.

In line with earlier assessments, the average headline inflation is expected to be negative in 2020 due mainly to the substantially lower global oil prices. For 2021, headline inflation is projected to average higher, primarily due to higher global oil prices. Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments.

The MPC considers the stance of monetary policy to be appropriate and accommodative. Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth. The Bank remains committed to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery.

Bank Negara Malaysia
20 Jan 2021

— end —

If you like to read this news and more from Bank Negara Malaysia, click here to go to their website.

By the way, this is not an easy decision especially with the MCO 2.0 decision which has now cover the whole Malaysia except Sarawak. Reducing the OPR will help in a pre-emptive move if the economy grows weaker due to the MCO 2.0. Not reducing meant that BNM still have confidence with the near term economic growth. Do read the press release above to understand their decision.

Briefly, MCO 2.0 is not seen to be causing huge changes to their earlier forecasts about the economy. BNM also consider the current monetary policy stance as appropriate and accommodative. Please note that there is a limit to potential effects from ever lower interest rates. It may reach a point where the lowering no longer has any significant impact. Till the next MPC meeting on 4th March 2020.

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Next suggested article:  No inflation, no need to raise the rates?

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