Friday 29 Mar 2024
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KUALA LUMPUR (Jan 25): Bank Negara Malaysia (BNM) raised the overnight policy rate by 25 basis points to 3.25% — the first hike in four years — at the first Monetary Policy Committee (MPC) meeting of the year today, as the Malaysian economy remains firmly on a steady growth path.

In a statement, it said this correspondingly raises the floor and ceiling rates of the corridor for the OPR to 3% and 3.5%, respectively.

It said the global economy has strengthened amid strong growth in global trade, while Asian economies are driven by sustained domestic activity and strong external demand.

"Global growth is projected to experience a faster expansion in 2018. In this environment, risks to the global growth outlook are more balanced, pointing towards continuity in the current phase of global economic expansion.

"For the Malaysian economy, latest indicators reaffirm the strength in exports and domestic activity. Looking ahead, the strong growth momentum is expected to continue in 2018, sustained by the stronger global growth and positive spillovers from the external sector to the domestic economy," it added.

Domestic demand, it said, will continue to be the key growth driver for the country, amid favourable income and labour market conditions.

Meanwhile, new and ongoing infrastructure projects and capital spending by both export- and domestic-oriented firms support a positive outlook for investment activity.

The central bank expects headline inflation to average lower in 2018 compared to the 3.7% in 2017, as it anticipates a smaller effect from global cost factors.

"A stronger ringgit exchange rate compared to 2017 will mitigate import costs. Global energy and commodity prices are expected to trend higher in 2018.

"However, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain. Underlying inflation, as measured by core inflation, remains moderate," it added.

On domestic financial markets, it said they have been resilient while the ringgit strengthened to better reflect Malaysia's economic fundamentals.

The liquidity of the banking system also remains sufficient, and growth of financing to the private sector has been sustained.

"With the economy firmly on a steady growth path, the MPC decided to normalise the degree of monetary accommodation. At the same time, the MPC recognises the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time.

"At the current level of the OPR, the stance of monetary policy remains accommodative. The MPC will continue to assess the balance of risks surrounding the outlook for domestic growth and inflation," the central bank added.

 

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