BNM cuts OPR by 25bps to record low of 1.75%

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KUALA LUMPUR (July 7): Bank Negara Malaysia (BNM) cut its overnight policy rate (OPR) by 25 basis points (bps) today to a record low of 1.75%, saying that the impact of the Covid-19 pandemic on the global economy is severe and that Malaysia’s economic activity contracted sharply in the second quarter of the year due to measures introduced to contain the pandemic.

In a statement today, the central bank said Malaysia’s inflationary pressures are expected to be muted in 2020.

"The impact of Covid-19 on the global economy is severe. Global economic conditions remain weak with global growth projected to be negative for the year. For Malaysia, economic activity contracted sharply in the second quarter of the year, due to measures introduced to contain the pandemic globally and domestically.

"Following the gradual and progressive re-opening of the economy since early May, economic activities have begun to recover from the trough in the second quarter. The fiscal stimulus packages, alongside monetary and financial measures, will continue to underpin the improving economic outlook. 

"The projected improvement in the domestic economy is expected to be further supported by a gradual recovery in global growth conditions. The pace and strength of the recovery, however, remain subject to downside risks emanating from both domestic and external factors. These include the prospect of further outbreaks of the pandemic leading to re-impositions of containment measures, more persistent weakness in labour market conditions, and a weaker-than-expected recovery in global growth,” it said.

BNM said Malaysia's average headline inflation is likely to be negative this year, primarily reflecting substantially lower global crude oil prices.

The central bank said the risks of a broad-based and persistent decline in prices are assessed to be limited as economic activity resumes and demand conditions improve. Nevertheless, the outlook remains significantly affected by global oil and commodity prices and underlying inflation is expected to be subdued and within expectations, according to BNM.

"The reduction in the OPR provides additional policy stimulus to accelerate the pace of economic recovery. The MPC  (Monetary Policy Committee) will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth. 

"The bank (BNM) will continue to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery," BNM said.

Including today’s OPR cut, BNM has slashed the OPR four times so far this year for a cumulative 125bps reduction.

On Jan 22, 2020, BNM cut the OPR by 25 bps to 2.75% followed by another 25bps reduction on March 3 to 2.5%.

On May 5, BNM slashed the OPR by 50 bps to 2.00%

On May 13, BNM said in a statement that Malaysia's economic growth, as measured by gross domestic product, moderated sharply to 0.7% in the first quarter of 2020 from a year earlier versus the 3.6% expansion in 2019’s fourth quarter.

Malaysia’s inflation, as measured by the consumer price index (CPI), has dropped for the third consecutive month in May 2020, according to the Statistics Department.

It was reported that the CPI declined 2.9% in May 2020 from a year earlier, led by the drop in the transport component on lower fuel prices.

The CPI dropped for the third consecutive month in May 2020 after March 2020's 0.2% decline. April 2020 CPI declined 2.9% year-on-year — the sharpest fall recorded since 2010.