Thursday 28 Mar 2024
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KUALA LUMPUR (April 3): Bank Negara Malaysia (BNM) said today the country’s monetary policy in 2020 will focus on providing support to domestic economic growth in an environment of subdued price pressures as the COVID-19 pandemic increases risks to the country’s growth outlook.

According to BNM’s Economic and Monetary Review 2019, following the notable increase in risks to the growth outlook since end-2019, especially arising from the COVID-19 pandemic, the overnight policy rate (OPR) was reduced in January and March 2020 by a total of 50 basis points to 2.5%. Both adjustments were intended to provide a more accommodative monetary environment to support economic growth amid low inflation, it said.

"Future monetary policy considerations will continue to be guided by the balance of risks surrounding the outlook for domestic growth and inflation, which are continuously evolving. Meanwhile, the Bank’s (BNM) monetary operations will continue to ensure that domestic liquidity in the financial system remains sufficient to support the orderly functioning of the domestic financial markets.

"As it stands, the lowering of the Statutory Reserve Requirement (SRR) ratio by 100 basis points to 2% in March 2020 and additional SRR flexibilities granted to Principal Dealers by recognising MGS (Malaysian Government Securities) and MGII (Malaysian Government Investment Issues) for SRR compliance have released approximately RM30 billion worth of liquidity into the banking system,” BNM said.

BNM said Malaysia's economic growth, as measured by Gross Domestic Product (GDP), is projected at between -2% and 0.5% in 2020 against a highly challenging global economic outlook due mainly to the COVID-19 pandemic. Apart from the pandemic, the domestic economy will also be affected by the sharp decline and volatile shifts in crude oil prices and continued supply disruption in the commodities sector, according to the Central Bank.

Headline inflation, as measured by the Consumer Price Index, is forecast to average within the range of -1.5% to 0.5%, according to BNM. The downward pressure on inflation predominantly reflects the expectation of significantly lower global oil and commodity prices, it said.

The trajectory of headline inflation is contingent upon the developments surrounding global commodity prices, particularly global oil prices, which remain highly uncertain, it said.

"Without the direct downward impact from lower global oil prices, underlying inflation, as measured by core inflation, is projected to remain positive, averaging between 0.8% – 1.3%. This is amid subdued demand pressures and reflects the negative output gap that is expected this year. In addition, labour market conditions are expected to be weaker in 2020,” BNM said.

In 2019, the country’s GDP grew 4.3% from a year earlier while inflation stood at 0.7%, the Central Bank said.

For more stories on BNM's annual report, click here.

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