Overnight Policy Rate maintained at 2.75pct. Negative?
How can central banks support economic growth?
Central banks would always try to help the expansion of the economy. If the economy is slowing down, one possible way the central bank could encourage economic expansion is to reduce the interest rate. This makes it less attractive to put the money into bank and people may choose to invest those instead. With a lower interest rate, the businesses may also take this opportunity to borrow money and expand their business. People may also think it is a good time to invest into property for example. So, reducing the interest rate is one such measure.
Below is the full Monetary Policy Statement from BNM.
Monetary Policy Statement
09 Mar 2023
At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate ( OPR ) at 2.75 percent.
In the global economy, there were some positive developments with the reopening of China’s economy and better-than-expected growth outturns in major economies, supported by resilient domestic demand. Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates. Headline inflation moderated slightly from high levels in recent months, but core inflation remained above historical averages. Some central banks are expected to continue raising interest rates to manage inflationary pressures. This will continue to pose headwinds to the global growth outlook. The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions.
The Malaysian economy expanded strongly by 8.7% in 2022 driven by the recovery in private and public sector spending following the full reopening of the economy. After the strong performance in 2022, the economy is expected to moderate in 2023 amid a slower global economy. Growth will remain driven by domestic demand. Household spending will be underpinned by sustained improvements in employment and income prospects. Tourist arrivals are expected to continue rising, further lifting tourism-related activities. The continued progress of multi-year infrastructure projects will support investment activity. The implementation of projects from the recently re-tabled Budget 2023 would provide upside risks to the domestic growth outlook. Downside risks continue to stem mainly from global developments, including from weaker-than-expected growth outturns or much tighter and more volatile global financial conditions.
Headline and core inflation are expected to moderate over the course of 2023, but will continue to be elevated amid lingering demand and cost factors. The extent of upward pressures to inflation will remain partly contained by existing price controls and fuel subsidies, and the remaining spare capacity in the economy. The balance of risk to the inflation outlook is tilted to the upside and continues to be highly subject to any changes to domestic policy on subsidies and price controls, as well as global commodity price developments.
At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. The MPC will continue to assess the impact of the cumulative OPR adjustments, given the lag effects of monetary policy on the economy. The MPC remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook. Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook. The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth.
See also:
Bank Negara Malaysia
09 March 2023
— end of BNM’s Monetary Policy Statement
What is accommodative stance for Overnight Policy Rate (OPR)?
If the central bank maintains the interest rate, it meant that it sees the economy to be moving positively. Thus perhaps just let the economy continue to grow by itself versus doing too many things. So, what is happening in Malaysia? Bank Negara Malaysia (BNM) has decided that the economy is growing. Thus the interest rate is maintained so that it is accommodative to growth. Briefly, it meant that economy Malaysia is moving in the right direction and there are no sign(s) of that often quoted recession here in Malaysia. This is based on the latest numbers yeah. No one knows what may happen later.
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