Bank Negara keeps interest rate at 3%

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KUALA LUMPUR (Jan 19): As expected, Bank Negara Malaysia (BNM) left its benchmark interest rate unchanged at 3% today at its first Monetary Policy Committee (MPC) meeting of the year.

The central bank had reduced the overnight policy rate (OPR) by 25 basis points to 3% on July 13, 2016.

In a statement today, BNM said at the current level of OPR, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid a stable core inflation, supported by sustained financial intermediation in the economy.

"While the risks of destabilising financial imbalances are contained, the MPC will monitor these risks to ensure the sustainability of the overall growth prospects. The MPC will continue to assess the balance of risks surrounding the outlook for domestic growth and inflation," it added.

BNM noted that headline inflation averaged 2.1% in 2016 and is expected to average higher in 2017, amid the prospect of higher global oil prices.

"However, these cost factors are not expected to cause significant spillovers to the broader price trends, given the stable domestic demand conditions. Underlying inflation is therefore expected to remain stable," it said.

BNM also pointed out that latest indicators point to continued expansion for Malaysia in the fourth quarter of 2016.

"Going forward, private sector activity will remain the key driver of growth. Private consumption is expected to be sustained by continued wage and employment growth, with support from various policy measures to raise disposable income. Investment activity, although moderating, will be supported by ongoing infrastructure development projects and capital spending in the manufacturing and services sectors.

"On the external front, the expected improvement in exports will provide some support to growth. Overall, the economy remains on track to expand as projected," it said.

On the ringgit, BNM said the volatility has reduced since the sharp adjustments experienced towards the end of 2016, noting that the implementation of financial market development measures has provided stability to the domestic foreign exchange market.

However, it warned that uncertainties in the global economy, the policy environment and geopolitical developments may, however, result in bouts of volatility in the regional financial and foreign exchange markets.

"In this regard, BNM will continue to provide liquidity to ensure the orderly functioning of the financial markets," it said, adding that the banking system liquidity remains ample.

On the global front, BNM said the global economy is projected to expand at a slightly faster pace this year.

"The prospect of a shift towards progressive use of fiscal policy in the developed economies could lead to a more balanced policy environment that would support growth.

"Nevertheless, heightened uncertainty and downside risks to global growth remain, arising from risks of protectionism, geopolitical developments and commodity price volatility. These risks could also lead to episodes of increased financial market volatility," it noted.