The Overnight Policy Rate (OPR) puzzle has finally been answered with Bank Negara Malaysia's Monetary Policy Committee (MPC) welcoming a 25 basis point increase to 2.5%.
In conjunction with the surge, the ceiling rate is at 2.75% and the floor rate at 2.25%.
Global Economic Paradigm
The global economic situation is seen to be growing, albeit at a slow pace, supported by an improving labor market while the full opening of international borders boosts business activity.
Despite this, inflationary pressures remain high due to the surge in commodity prices due to supply shortages in the global supply chain and the tight labor market situation.
Following that, central banks are expected to continue adjusting their monetary rate settings to control inflationary pressure.
Going forward, global growth is predicted to continue to be challenged by the effects of monetary policy tightening as well as epidemic management measures in China.
The situation in Malaysia
According to BNM, the country's headline inflation averaged at 2.8% and is predicted to peak in the 3rd quarter (3Q) of 2022 before declining later with the expected decline in global commodity prices.
In addition, core inflation as measured by core inflation averaged in the forecast range of 2.0%-3.0% in 2022 when there was pressure during the existence of price surges.
However, the country's post-pandemic transition and strong policy measures have contributed to growth during Q2.
On that factor, growth will continue to increase with support from private sector spending, labor market conditions and positive income prospects as well as reduced unemployment.
On the other hand, external demand is projected to moderate due to slower global growth despite improvements in global financial and foreign exchange markets.
Final Word From BNM
Overall, there is downside risk to the domestic economy due to weak growth as well as geopolitical conflicts and supply chain disruptions.
However, BNM still has a positive outlook for the Malaysian economy and the MPC will continue to adjust monetary accommodation in an accommodative manner and help growth.
