KUALA LUMPUR (Oct 7): Bank Negara Malaysia (BNM) is expected to keep the overnight policy rate (OPR) at 1.75% until mid-2022 to support a firmer revival in domestic demand, the Socio-Economic Research Centre (SERC) said on Thursday (Oct 7).
SERC executive director Lee Heng Guie said Malaysia's continued low interest rate environment complements the targeted fiscal support to secure a sustainable economic recovery path for the nation.
"The overall economic growth and inflation outlook as well as financial stability risk will be carefully assessed in a balancing act to time the starting of interest rate normalisation," Lee said in a virtual media briefing on Thursday (Oct 7).
SERC anticipated the country's inflation, as measured by the consumer price index (CPI), to stay relatively stable in the remaining months of 2021 to take SERC's full-year CPI growth estimate for Malaysia to 2.5% in 2021, according to him.
Malaysia's OPR of 1.75% is the lowest on record, according to BNM data which dates back to 2004.
BNM said in a statement on July 7, 2020 that the central bank's Monetary Policy Committee (MPC) on that day decided to reduce the OPR by 25 basis points to 1.75% as the impact of the Covid-19 pandemic on the global economy was severe.
"The reduction in the OPR provides additional policy stimulus to accelerate the pace of economic recovery," BNM said then.
Since then, BNM had maintained the OPR at 1.75% until its latest MPC meeting on Sept 9, 2021.
In a Sept 9, 2021 statement, BNM said that given the uncertainties surrounding the pandemic, the stance of Malaysia's monetary policy would continue to be determined by new data and information and their implications on the overall outlook for inflation and domestic growth.
"Year-to-date, headline inflation has averaged 2.3%, and is projected to average between 2.0% and 3.0% for 2021. Underlying inflation, as measured by core inflation, is expected to remain subdued, averaging between 0.5% and 1.5% for the year, amid continued spare capacity in the economy.
"The outlook, however, continues to be subject to global commodity price developments and policy measures to alleviate the cost burden of the public. Underlying inflation, however, is expected to remain relatively subdued in 2022," BNM said.