KUALA LUMPUR (March 23): Bank Negara Malaysia expects monetary policies in 2017 to focus on domestic growth and price stability, on the back of higher inflation, volatile capital flows and lingering constraints in the economic and financial environment.

"The global economy is anticipated to improve gradually in 2017," the central bank said in its Annual Report 2016, though it acknowledged higher trade protectionism and geopolitical developments globally as potential setbacks.

"Moreover, the expected shifts in global liquidity and capital flows, given the anticipation of monetary policy normalisation in the US, would have spillover effects on the domestic financial markets and the ringgit exchange rate," it added.

Ringgit depreciated by 4.3% against the US dollar for the whole of 2016, despite having emerged as the biggest gainer among regional currencies in April the same year.

In the same period, the ringgit also depreciated against other major currencies but strengthened 15.4% against the British pound, Bank Negara said.

The local currency gained as much as 9.9% against the greenback between Jan 1 and April 30, 2016, reaching a high of RM3.865 on the back of portfolio inflows, the central bank said in its annual report.

Moving forward, Bank Negara highlighted policy tools as "crucial" for the management of risks this year as well.

"The bank's monetary operations will continue to ensure that domestic liquidity in the financial system will remain sufficient to support the orderly functioning of the domestic financial markets," it added.