By CentralBankNews.info
Malaysia’s central bank kept its benchmark Overnight Policy Rate (OPR) steady at 3.25 percent and repeated its view that its current monetary policy stance was accommodative and supportive of economic activity.
Bank Negara Malaysia (BNM) also said it recognized “downside risks” in the global environment that it was closely monitoring, a slight shift in language from its previous statement in March when it noted “heightened risks.”
Malaysia’s economy slowed slightly in the first quarter of this year to annual growth of 4.2 percent from 4.5 percent in the fourth quarter of 2015, but in line with the central bank’s view.
For the full year, BNM confirmed its growth forecast of 4-4.5 percent, down from 2015’s 5.0 percent.
Private consumption is expected to expand further this year while private investment has eased due to lower activity in the oil, gas and commodities sectors, and exports will be limited by the weak global economy, BNM said.
It was the first statement by the central bank’s Monetary Policy Committee since Muhammad Ibrahim this month took over as governor from Zeti Akhtar Aziz, who had led the BNM for 16 years. Muhammad had been deputy governor since 2010.
The central bank has maintained its rate since July 2014 when it was raised it by 25 basis points.
Malaysia’s inflation rate eased to 2.6 percent in March from 4.2 percent in February for an average rate of 3.4 percent in the first quarter and is expected to trend lower for the rest of the year due to low energy and commodity prices.
The BNM, which targets inflation of 2.5-3.5 percent this year, dropped its previous references to inflation rising this year from last year.
The central bank had expected inflation to pick up this year due to higher administered prices, which included a 40 percent hike in tobacco prices in November along with a 6 percent goods and services tax in April last year, along with the impact on import prices from the weak ringgit from May 2013 through September 2015.
Global economic expansion continues, albeit at a more moderate pace, across major advanced and emerging market economies in the first quarter of the year. In Asia, domestic demand remains the key contributor to growth amid continued weakness in the external sector. Volatility in the international financial markets has receded and investor sentiments have improved, although this is susceptible to policy and market developments. Looking ahead, structural issues and geopolitical developments will continue to constrain growth of the global economy despite the highly accommodative monetary conditions.
Overall domestic financial conditions have remained stable. The financial system continues to be sound, with improved liquidity in the domestic financial system, continued orderly functioning of the financial and foreign exchange markets, and financial institutions operating with strong capital and liquidity buffers. The growth of financing to the private sector is consistent with the pace of economic activity and financing conditions remain supportive of economic growth.