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Bank Negara Malaysia has decided to maintain the OPR. Read their reasons here.

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We have this earlier article where I say that the cut is unnecessary unless there is the expectation that the economy going to go worse versus today. The reason is simple. By not doing it too soon, we have more rooms to move if a cut is truly necessary in the future. In fact I would say that with more and more news about the vaccination progress, the sentiment would start to become even more positive. Below would be the full press release by Bank Negara Malaysia (BNM) (click to read)

maintain the OPR
Photo by Karolina Grabowska on Pexels.com

— start of press release —

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 economic recovery, while uneven, is gaining momentum, supported by steady improvements in manufacturing and trade activity. The ongoing roll-out of vaccination programmes in many economies, together with policy support, will further facilitate an improvement in private demand and labour market conditions. While financial markets have experienced bouts of volatility, financial conditions remain supportive of economic activity. Risks to the growth outlook have abated slightly, but remain tilted to the downside, primarily due to uncertainty over the path of the COVID-19 pandemic and effectiveness of the vaccination programmes.

For Malaysia, latest indicators point to improvements in external demand and continued consumer spending. While the re-imposition of containment measures will affect growth in the first quarter, the impact is expected to be less severe than that experienced in the second quarter of 2020. Going forward, growth is projected to improve from the second quarter onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures. Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the E&E and primary-related sub-sectors, as well as oil and gas facilities. The roll-out of the domestic COVID-19 vaccine programme will also lift sentiments and economic activity. The growth outlook, however, remains subject to downside risks, stemming mainly from ongoing uncertainties in developments related to the pandemic, and potential challenges that might affect the roll-out of vaccines both globally and domestically.

Headline inflation in 2021 is projected to average higher, primarily due to higher global oil prices. In terms of trajectory, headline inflation is anticipated to temporarily spike in the second quarter of 2021 due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter. 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 continue to 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 foster enabling conditions for a sustainable economic recovery.

Bank Negara Malaysia
04 Mar 2021

You could view their full press release here.

— end of press release —

What does BNM say from this decision?

If we read what they (BNM MPC) is anticipating, we could see that BNM is quite positive not just for Malaysia but also the recovery externally too. It is also projecting that growth will be better from Q2 2021 onwards. It does issue a warning that there remain uncertainties but generally the current OPR Is good enough and that it is already accommodative for the market.

Accommodative means that the OPR is already low enough that businesses or even people will proceed with their expansion or investments respectively. I also think anything lower will not affect the decision much already. I hope everyone can start feeling a little more positive because NOT adjusting the OPR is definitely a stamp of confidence on the economy.

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Next suggested article: Too low interest will cause too high interest, not good.

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