KUALA LUMPUR (March 30): Monetary policy in 2022 will continue to support a sustainable economic recovery while preserving price stability, said Bank Negara Malaysia (BNM).

BNM said the Monetary Policy Committee (MPC) is mindful of the potential upside risks to inflation which continue to be subject to global commodity price developments amid risks from ongoing geopolitical conflicts and prolonged supply-related disruptions.

“While monetary policy may not be the best tool to react to these 'first-round' effects, the MPC will assess whether such price pressures could become more persistent and pervasive, and whether they would be reinforced by stronger domestic demand,” the central bank said in its 2021 Economic and Monetary Review report released on Wednesday (March 30).

In 2021, BNM maintained its overnight policy rate (OPR) at the historical low of 1.75% to ensure sustainable economic growth in an environment of manageable price pressures.

While further normalisation of monetary policy is anticipated in 2022 for most central banks, BNM said any of its potential adjustments to the degree of monetary accommodativeness “would be made in a measured and gradual manner”.

The bank’s monetary policy operations will also ensure sufficient domestic liquidity in the financial system “to support financial intermediation and the orderly functioning of the financial markets”.

The MPC considers the current stance of monetary policy to be appropriate and accommodative given the prevailing outlook on growth and inflation for 2022, it added.

Furthermore, it said the MPC will continue to monitor the outlook for growth and inflation and the possibility of materialisation of risks.

“Considerations for continued monetary policy support would need to be balanced against maintaining low interest rates for a prolonged period, which could lead to an emergence of financial imbalances through excessive-risk taking behaviour and an unhealthy build-up in leverage,” BNM added.

Beyond 2022, the central bank said it is currently reviewing its monetary policy framework “to ensure that it remains relevant in safeguarding price stability that continues to promote sustainable growth”.

This is as the health crisis has led to behavioural and structural shifts among households and business, with implications for economic and financial linkages.

“Key elements of change on the horizon include the accelerated pace of digital technology and the shift towards greater market-based financing.

“As such, the review will dive deep into key areas that would have implications for the conduct of monetary policy, such as the digitalisation of finance, monetary policy communications and outreach, and climate change, among others,” it said.

Read more stories from the BNM Annual Report 2021 here.