BNM cuts OPR to 2.75% in pre-emptive measure to secure improving growth trajectory

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KUALA LUMPUR (Jan 22): Bank Negara Malaysia's (BNM) Monetary Policy Committee (MPC) has reduced the overnight policy rate (OPR) to 2.75% from 3% in a pre-emptive measure to secure the nation's improving economic growth trajectory amid price stability.

In a statement today, BNM said the ceiling and floor rates of the OPR corridor are correspondingly reduced to 3% and 2.5% respectively. At the current level of the OPR, the MPC considers the stance of monetary policy to be appropriate in sustaining economic growth with price stability, the central bank said.

"The global economy continues to expand at a moderate pace. Latest indicators and the recent dissipation of trade tensions point to improving global trade activity. Monetary easing across major economies in the second half of 2019 has helped ease financial conditions, and is expected to continue to support economic activity. However, downside risks remain due to geopolitical tensions and policy uncertainties in a number of countries. This could cause a resurgence of financial market volatility and weigh on the global growth outlook.

"For the Malaysian economy, latest indicators and supply disruptions in commodity-related sectors point to moderate expansion of economic activity in the fourth quarter. For 2019, growth will be within the projected range. For 2020, growth is expected to gradually improve, with continued support from household spending and better export performance.

"Overall investment activity is expected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors. However, downside risks to growth remain. These include uncertainty from various trade negotiations, geopolitical risks, weaker-than-expected growth of major trade partners, heightened volatility in financial markets, and domestic factors that include weakness in commodity-related sectors and delays in the implementation of projects," BNM said.

The central bank said Malaysia's headline inflation is expected to remain modest. The country's headline inflation averaged at 0.7% in 2019 and the 2020 figure is expected to average higher but remain modest, it said.

According to BNM, the trajectory of the nation's headline inflation will be dependent on global oil and commodity price developments, and the timing of the lifting of the domestic retail fuel price ceilings.

"Underlying inflation is expected to remain broadly stable, reflecting the continued expansion in economic activity and the absence of strong demand pressures," it said.