KUALA LUMPUR (Sept 5): Bank Negara Malaysia's Monetary Policy Committee (MPC) has today decided to maintain the overnight policy rate at 3.25%, as it acknowledges that the local economy faces downside risks from heightened trade tensions in the immediate term.
Such risks also come from prolonged weakness in the mining and agriculture sector — which it said experienced supply disruptions leading to more moderate second quarter growth — and some domestic policy uncertainty.
But on the demand side, growth remained supported by private sector activity with further impetus from net exports, it said.
"Looking ahead, private consumption, which was boosted by the tax holiday, will continue to be driven by steady wage and employment growth. Investment activity is projected to be underpinned by continued capacity expansion in key sectors, particularly in the export-oriented industries, driven by favourable demand and efforts to enhance automation," it said in a statement.
"Public sector spending, however, is expected to weigh on growth as the government embarks on reprioritisation of expenditure," it said, adding the external sector will continue to benefit from sustained global growth momentum.
"On balance, the Malaysian economy is expected to remain on a steady growth path," it said.
While headline inflation came in at 0.9% in July, the central bank said going forward and continuing into 2019, headline inflation is seen edging upwards, after taking into consideration the impact of policy measures on domestic cost factors.
"The impact of the changes in the consumption tax policy on headline inflation will be transitory and lapse towards the end of 2019. Underlying inflation is nevertheless expected to remain relatively stable," it said.
It also noted that "in line with regional economies, the domestic financial markets continue to experience non-resident portfolio outflows due to ongoing global developments".
Nevertheless, it said the domestic financial markets remain resilient with domestic monetary and financial conditions supportive of economic growth.
"Bank Negara Malaysia's monetary operations will continue to ensure sufficient liquidity to support the orderly functioning of money and foreign exchange markets and intermediation activity.
"At the current level of the OPR, the degree of monetary accommodativeness is consistent with the intended policy stance. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation," it added.