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Inflation is a worry. Economic growth is compulsory.

inflation

Inflation is a worry. Economic growth is compulsory.

With the Russia-Ukraine war, oil price has been increasing. As oil is a basic input for everything, the prices of everything else are also on an uptrend. Inflation continues to be worrying for many countries and of course, Malaysia too. Everything is in speculative mode. Everyone is expecting the worst to happen.

However, as much as inflation is a worry, GDP growth is even more important. Thus supporting this current fragile economic recovery is compulsory. Our Bank Nagara Malaysia has decided. Read their latest Monetary Statement as below. My comments right after.

— Bank Negara Malaysia Monetary Statement — (Source: bnm.gov.my)

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. Despite the recent moderation in economic activity due to the Omicron-driven COVID-19 resurgences, the overall recovery trajectory remains on track. Inflation in many economies remain elevated, due to both demand and supply factors. Going forward, more countries will transition to endemic management of COVID-19, hence supporting global growth prospects. The unfolding developments surrounding the military conflict in Ukraine, however, have emerged as a key risk to global growth and trade prospects, commodity prices and financial market conditions. The global growth outlook will also continue to be affected by developments surrounding COVID-19, risks of prolonged global supply disruptions, and heightened financial market volatility amid adjustments in monetary policy in major economies.

Despite the challenging environment, the Malaysian economy expanded by 3.1% in 2021. Looking ahead, the growth recovery will strengthen in 2022, driven by the expansion in global demand and higher private sector expenditure, amid improvements in the labour market and continued targeted policy support. The expected reopening of international borders would also provide further support to economic recovery. The economic impact from the recent increase in COVID-19 cases due to the Omicron variant is expected to be considerably less severe than previous waves in the absence of stringent restrictions. Risks to the growth outlook remain tilted to the downside due to external and domestic factors. These include a weaker-than-expected global growth, ongoing geopolitical conflicts, worsening supply chain disruptions, and developments surrounding COVID-19.

Headline inflation in 2022 is projected to remain moderate as the base effect from fuel inflation continues to dissipate. Underlying inflation, as measured by core inflation, is expected to normalise to around its long-term average as economic activity continues to pick up amid the environment of high input costs. Nevertheless, core inflation is expected to be modest, with the upside risk partly contained by the continued slack in the economy and labour market. The inflation outlook continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions.

The MPC considers the current stance of monetary policy to be appropriate and accommodative. Fiscal and financial measures will continue to provide support to economic activity. Amid the prevailing uncertainties, the stance of monetary policy will continue to be determined by new data and their implications on the overall outlook for domestic inflation and growth.

Bank Negara Malaysia
03 March 2022

— end of BNM’s monetary statement —

Interest rate to continue to be accommodative

In H2 2022, many analysts are predicting a rise in interest rate. The current rate is very, very low. I think they may be right as long as the current Russia – Ukrain war is over soon and confidence on growth comes back. Here’s that prediction for your reading: Interest rates will rise in H2 2022. Let’s be ready and be happy too. What’s even more important is to continue to support the current recovery by ensuring more people invest their money versus putting it in the bank to earn a paltry return after 12 months.

Just remember that if interest rates are too low for too long, then many speculative activities will happen and this is not healthy for the economy too. 1997/98 ASEAN financial crisis is certainly a history we do not wish to repeat yeah. For now, continue to be cautiously optimistic. This is not the time to be negative and forget opportunities are everywhere yeah. Cheers.

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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