Contrary to expectations, Bank Negara Malaysia decided to keep the overnight policy rate (OPR) unchanged at 2.75% today.
This missed expectations for a 25 basis point hike by analysts, after the central bank raised the OPR rate four times in a row last year.
Global Economy
The decision was reached based on the global economic situation which is still burdened by high interest rates and cost pressure as well as disruptions related to Covid-19 in China.
Although headline inflation has started to moderate, core inflation is seen to remain higher than historical averages.
As a result, the central bank is expected to continue to increase interest rates albeit at a slower rate to reduce inflationary pressure.
This will continue to bring gloom in global growth prospects. However, at the same time growth in China is expected to improve following the reopening of restrictions.
Economic Development of Malaysia
The country's economy continues to grow in the fourth quarter of 2022 driven by strong domestic demand.
The streak, growth for 2022 is projected to exceed the initial projection range of 6.5%-7.0%. Even so, development in 2023 is predicted to be more modest against the backdrop of a slow global economy.
Growth is expected to remain driven by domestic demand with continued improvements in employment prospects and incomes continuing to support household spending.
Inflation peaked in the third quarter of 2022, but it is expected to remain elevated in 2023 due to continued demand and cost pressures.
Overall, BNM said the monetary policy stance remains accommodative and supportive of economic growth.
Any further changes in the OPR will depend on current developments and their impact on inflation and growth prospects.
