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2021 inflation projected at between 2.5% and 4.0%. OPR stays the same.

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Briefly, Bank Negara Malaysia (BNM) has decided that OPR stays the same.

When we need a bigger push to help the economy, the interest rate is one such tool under monetary policy by Bank Negara Malaysia (BNM). However, this should not be used if the market seems to be recovering. Keep it till it’s needed. With the global economic recovery as well as a rebound in GDP growth in Q1 2021 versus 2020, BNM has decided that the current rate of 1.75% for the OPR is accommodative enough. Here is the full press release by BNM.

Monetary Policy Statement

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 continues to strengthen, particularly in the major economies, supported by improvements in manufacturing and trade activity, although the pace may vary across countries. The ongoing roll-out of vaccination programmes and sizeable fiscal stimulus measures in the US as well as policy support in other major economies will further facilitate an improvement in domestic demand. However, the recovery trajectory in some economies could be disrupted by a re-tightening of containment measures to curb COVID-19 resurgences. Recent financial market volatility has somewhat receded, and financial conditions remain supportive of growth. The balance of risks to the growth outlook remains tilted to the downside, due mainly to uncertainty over the path of the pandemic as well as potential risks of heightened financial market volatility.

For Malaysia, latest indicators point to continued improvements in economic activity in the first quarter and into April. While the recent re-imposition of containment measures in select locations will affect economic activity in the short term, the impact will be less severe as almost all economic sectors are allowed to operate. The growth trajectory is projected to improve, driven by the stronger recovery in global demand and increased public and private sector expenditure amid continued support from policy 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 progress of the domestic COVID-19 vaccine programme will also lift sentiments and contribute towards recovery in 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 between 2.5% and 4.0%, primarily due to the cost-push factor of higher global oil prices. In terms of trajectory, headline inflation is anticipated to temporarily spike in the second quarter of 2021, due particularly to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020. However, this will be transitory as headline inflation is projected to moderate thereafter as this base effect dissipates. Underlying inflation, as measured by core inflation, is expected to remain subdued, averaging between 0.5% and 1.5% for the year, 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
06 May 2021

To read in BNM’s website, click here.

How long has this stayed the same?

A friend from a brokerage firm sent me the historical view of the OPR in the image below. I share it here with all of you. It has not been changed since May 2020 which was a drastic drop as the economy was under lockdown and needed a big push.

Good and Bad, of course

I think the fixed depositors who does not know how else to invest their money would heave a sigh of relief. At least, the FD rate does not drop further. it’s already so low currently. 2% is considered high for FD rates at the moment.

For the home owners who were hoping for another drop in their monthly repayment it is not happening. As for the ones looking to buy a home, be realistic yeah. Current rate of 3-3.2% is as low as it could be and history has always shown a number which is much higher. Any lower also indicate the economy is not doing well. It is not a good sign when that happens.

Till the next MPC then.

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Next suggested article: March 2021: BNM decided to maintain the OPR. Their reasons here.

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