KUALA LUMPUR (March 30): Bank Negara Malaysia (BNM) said its current monetary policy stance is appropriate and will continue to remain accommodative moving forward to support recovery and ensure price stability, given the prevailing economic outlook, growth and inflation for 2022.

At a virtual press conference on Wednesday (March 30), BNM governor Tan Sri Nor Shamsiah Mohd Yunus said the central bank will continue to do its part to manage demand-led price pressures by closely monitoring for any signs of potential second order effects that could cause recent inflation to become entrenched and reinforced by domestic demand factors.

Nor Shamsiah said BNM’s current monetary policy remains in line with the central bank’s latest Monetary Policy Statement which had maintained the overnight policy rate (OPR) at a historic low of 1.75% earlier this month.

The central bank chief also said it is cognisant of the consequences of keeping interest rates low for an extended period of time which could lead to an unhealthy build-up in financial imbalances.

“We will balance all these considerations, we will ensure that any potential adjustments to the OPR will be data-dependent. Any adjustments to the OPR may also mean that we are confident that we are on a firmer growth trajectory,” she added.

Nonetheless, Nor Shamsiah said the recent price increases are mostly due to supply-demand disruption which may not necessarily warrant a monetary policy response as it is a demand management tool.

“The bank's policy alone will not be sufficient to address the higher costs from the supply disruptions. It needs to be tackled through comprehensive and coordinated efforts by the government and the private sector,” she highlighted.

Responding to questions on the US Federal Reserve and Bank of England’s recent rate hikes, Nor Shamsiah said BNM, along with many other central banks, recognises that the unprecedented conditions that warranted the significant monetary support during the height of the pandemic are almost gone.

“We conduct our monetary policy premised on us achieving price stability and sustainable growth in Malaysia while we do consider global developments, we assess them through the lens of whether they affect the balance of risks on our inflation and growth outlook,” she said.

Malaysia’s financial markets have continued to show resilience amidst all these developments for months, while the ringgit’s movement has been broadly in line with regional currencies as volatility has remained subdued around 4% in 2022, which is lower than 6% in 2020, according to Nor Shamsiah.

“In fact, the ringgit movement was relatively muted against the [US] dollar when the Fed hiked its rates mid-March, and when we look at our MGS (Malaysian Government Securities) yield while it did adjust upwards, the movement has been orderly and in line with regional peers,” Nor Shamsiah concluded.

Read more stories from the BNM Annual Report 2021 here.