Overnight Policy Rate: Why it stays at 1.75%?
A few days ago, an economist says that Malaysia’s Bank Negara (BNM) should adjust the Overnight Policy Rate downwards to support the economy. (Read here) I sent the news to a few friends and said I disagree. There is really no need to adjust if the external environment is recovering and is able to support our exports. Plus the fact that the Covid-19 situation in Malaysia is indeed getting better. We even have a better new Health Minister!
In other words, the economy will definitely have better days ahead. Let’s keep the ‘bullet’ instead of firing it now unless it’s truly necessary to adjust the overnight Policy Rate. By the way, we even have inflation yeah. That’s indeed a good sign that demand is up and supply is still adjusting. Let’s read what BNM has to say.
— Start of media 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 economy continues to recover, supported by improvements in manufacturing and services activity. The strength of the recovery remains varied across countries mainly corresponding to their vaccination coverage, relaxation of containment measures and degree of policy support. Economies with better progress in their vaccination programmes have eased containment measures, enabling a continued recovery in domestic activity.
Sizeable fiscal and monetary stimulus in several major economies continue to support the recovery momentum. Financial conditions also remain supportive of growth. Overall, the balance of risks to the global growth outlook is tilted to the downside.
This is attributed mainly to uncertainty over the path of the pandemic amid the emergence of variants of concern, and potential risk of heightened financial market volatility amid adjustments in monetary policy in major economies.
For the Malaysian economy, the re-imposition of nation-wide containment measures to curb the resurgence in COVID-19 cases had dampened the growth momentum. However, the recent gradual relaxations for more economic sectors to operate, along with higher adaptability of firms to the new operating environment and continued policy support, would partly mitigate the impact and allow the economy to resume its recovery path.
Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand will support the growth momentum going into 2022. Risks to the growth outlook, however, remain tilted to the downside due to external and domestic factors.
These include delays in the easing or re-imposition of broad-based containment measures due to the impact of new COVID-19 variants of concern and a weaker-than-expected global growth recovery.
Year-to-date, headline inflation has averaged 2.3%, and is projected to average between 2.0% and 3.0% for 2021. 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, continues to be subject to global commodity price developments and policy measures to alleviate the cost burden of the public. Underlying inflation, however, is expected to remain relatively subdued in 2022.
The MPC considers the stance of monetary policy to be appropriate and accommodative. In addition, fiscal and financial measures will continue to cushion the economic impact on businesses and households and provide support to economic activity.
Given the uncertainties surrounding the pandemic, the stance of monetary policy 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
09 Sep 2021
— end of media release —
Malaysia’s economy and the words used by BNM in the media release for Overnight Policy Rate
Let’s look at some of the sentences. Important ones.
The global economy continues to recover, supported by improvements in manufacturing and services activity.
Economies with better progress in their vaccination programmes have eased containment measures, enabling a continued recovery in domestic activity.
Overall, the balance of risks to the global growth outlook is tilted to the downside.
Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand will support the growth momentum going into 2022.
Yes, Covid-19 is definitely an endemic (not a pandemic once it’s under control)
We will have to continue adjusting policies to live with Covid-19. Once the situation is under control; ICU cases are down to 20% of the capacity, we can take even more steps to reopen the economy. By the way, Singapore thinks of Covid-19 as endemic. So, a travel bubble between two countries having the same policy is going to be possible too. Support one another, that’s what neighbours are for. I look forward to better days. What about you?
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