KUALA LUMPUR (Nov 23): Bank Negara Malaysia (BNM) kept its key policy rates unchanged at 3% today, as it sees uncertainty arising from risks of protectionism and financial market volatility.

While noting in a statement that the global economy has continued to grow at a moderate pace, Asian growth, it said, has been supported by domestic demand amid persistent weakness in the external sector.

"Looking ahead, the baseline estimate is for global growth to improve slightly in 2017. 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 going forward. 

"Nevertheless there is uncertainty arising from risks of protectionism and financial market volatility. Heightened financial market volatility in recent weeks has had an adverse effect on various asset classes, exchange rates and yields across many emerging economies. 

"Global financial market conditions are likely to be susceptible to policy and market developments," it observed.

The current level of the overnight policy rate or OPR, it said, provides a degree of monetary accommodativeness that is "consistent with the policy stance to ensure that the domestic economy continues on a steady growth path, amid stable inflation, supported by continued healthy financial intermediation in the economy".

The statement was issued after its Monetary Policy Committee (MPC) meeting today — the last for the year. The next meeting will take place on Jan 18-19.

“The risk of destabilising financial imbalances has been contained. However, the MPC will be monitoring these risks to ensure the sustainability of the overall growth prospects,” it added.

BNM also noted that the ringgit, along with most emerging market currencies, has experienced sharp adjustments and significant volatility, due to continuing uncertainties in global economic and policy environment, and geopolitical developments.

“These factors could result in periods 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 domestic foreign exchange market,” it said.

At press time, the ringgit has weakened to 4.4427 against the U.S. dollar .

The central bank, meanwhile, highlighted that the capital market remains accessible, deep and liquid. 

“Banking system liquidity is ample. Financial institutions continue to operate with strong capital and liquidity buffers, and the growth of financing to the private sector is consistent with the pace of economic activity,” it said.

As for inflation, the central bank expects it to remain relatively stable in 2017, given the environment of low global energy and commodity prices and generally subdued global inflation.

“Headline inflation for 2016 is expected to be at the lower end of the projected range of 2%–2.5%

Going forward, BNM noted that private sector activity will remain the key driver of growth, as it sees private consumption being sustained by continued wage and employment growth, with additional support from government measures to increase disposable income. 

“Investment activity, although moderating, will be supported by on-going infrastructure investments and capital expenditure in the manufacturing and services sectors. 

“On the external front, exports are expected to expand, but will be constrained by soft demand from Malaysia’s key trading partners.

“Overall, the domestic economy remains on track to expand as projected in 2016 and 2017,” the central bank said.