KUALA LUMPUR (March 4): Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 1.75% today as it expects Malaysia's economic growth to improve although it is still subject to downside risks.
The central bank said in a statement that the global economic recovery, while uneven, is gaining momentum, supported by steady improvements in manufacturing and trade activities.
"The ongoing roll-out of vaccination programmes in many economies, together with policy support, will further facilitate an improvement in private demand and labour market conditions," it added.
While financial markets have experienced bouts of volatility, it noted that financial conditions remain supportive of economic activities.
"Risks to the growth outlook have abated slightly, but remain tilted to the downside, primarily due to uncertainty over the path of the Covid-19 pandemic and effectiveness of the vaccination programmes," it said.
For Malaysia, it said the latest indicators point to improvements in external demand and continued consumer spending.
While the reimposition of containment measures will affect growth in the first quarter, it said, the impact is expected to be less severe than that experienced in the second quarter of 2020.
"Going forward, growth is projected to improve from the second quarter onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures," it said.
It noted that growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electrical and electronics and primary-related sub-sectors, as well as oil and gas facilities.
The roll-out of the domestic Covid-19 vaccine programme will also lift sentiments and economic activities, it said.
"The growth outlook, however, remains subject to downside risks, stemming mainly from ongoing uncertainties in developments related to the pandemic, and potential challenges that might affect the roll-out of vaccines both globally and domestically," it added.
Meanwhile, the headline inflation in 2021 is projected to average higher, primarily due to an increase in global oil prices.
In terms of trajectory, the bank said, headline inflation is anticipated to temporarily spike in the second quarter of 2021 due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter.
"Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments," it said.
BNM also highlighted that its Monetary Policy Committee (MPC) considered the monetary policy stance to be appropriate and accommodative.
"Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth.
"The bank remains committed to utilising its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery," it said.