Bank Negara hikes OPR to 3.00%

Bank Negara Malaysia (BNM) today raised the overnight policy rate (OPR) by 25 basis points to 3.00%.

In a statement, it said the ceiling and floor rates of the OPR corridor would be correspondingly increased to 3.25% and 2.75% respectively. 

The OPR was lowered to a record 1.75% after the onset of Covid-19 in Malaysia in early 2020. 

Last year, it was raised a total of four times by a cumulative 100 basis points to 2.75% – still below the pre-Covid rate of 3.25% seen in March 2019. 

Economists had expected BNM to continue increasing the OPR rate to at least 3.00% this year, in line with the strengthening economic performance.

In its statement, BNM said the global economy continued to be driven by resilient domestic demand supported by strong labour market conditions, and a stronger-than-expected rebound of China’s economy. 

"Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates. 

"Headline inflation continued to moderate, but core inflation has persisted above historical averages. For most central banks, the monetary policy stance is likely to remain tight," it said. 

In Malaysia, BNM said that latest developments pointed towards further expansion in economic activity in the first quarter of 2023 after the strong performance in 2022.

"While exports are expected to moderate, growth in 2023 will be driven by domestic demand," it said. 

"Household spending remains resilient, underpinned by better labour market conditions as unemployment continues to decline to pre-pandemic levels."

It said the pick-up in tourists arrivals was expected to lift tourism-related activities, while further progress in multi-year infrastructure projects would support investment activity.

"Domestic financial conditions also remain conducive to financial intermediation, with no signs of excessive tightening affecting consumption and investment activities," it said. 

BNM said risks to the domestic growth outlook were relatively balanced, with upside risks mainly from domestic factors such as stronger-than-expected tourism activity and the implementation of projects including those from the re-tabled Budget 2023.

"Meanwhile downside risks stem from weaker-than-expected global growth and more volatile global financial market conditions," it added. 

It said headline inflation had trended lower in recent months, as expected, due to moderating cost factors. 

"Both headline and core inflation are expected to moderate over the course of 2023, averaging between 2.8% and 3.8%. 

"However, core inflation will remain at elevated levels amid firm demand conditions. Existing price controls and fuel subsidies will continue to partly contain the extent of upward pressures to inflation. 

"The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy including on subsidies and price controls, financial market developments, as well as global commodity prices," it said.