The inflation outlook continues to be subject to global commodity price developments, mainly from Ukraine military conflict & domestic policy measures, affecting OPR
The Overnight Policy Rate (OPR) has been increased by 25 basis points to 2.25 percent, with the ceiling and floor rates (of the OPR) also increased to 2.50 per cent and 2.00 per cent respectively.
In a statement issued by Bank Negara today, it said, “The reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity.
“However, these have been partly offset by the impact of rising cost pressures, the military conflict in Ukraine and strict containment measures in China.
“Inflationary pressures have continued to increase, mainly due to elevated commodity prices and strong demand conditions, despite some easing in global supply chain conditions.
Consequently, it said central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.
Going forward, it added, the pace of global growth is expected to moderate and will continue to be affected by the elevated cost pressures, conflict in Ukraine, global supply chain conditions, and financial market volatility.
Local Activities Strengthening
Local economic activities continued to strengthen in recent months with exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity.
The unemployment rate declined further, with higher labour participation and improving income prospects and looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, economic growth will be supported by firm domestic demand.
Additionally, the reopening of international borders since 1 April 2022 would facilitate the recovery in tourism-related sectors and investment activity and prospects continue to be supported by the realisation of multi-year projects.
However, downside risks to growth continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions.
Inflation Outlook & OPR
“Year-to-date, headline inflation has averaged 2.4%. While it is projected to remain within the 2.2% – 3.2% forecast range for the year, headline inflation may be higher in some months due mainly to the base effect from electricity prices.
“Underlying inflation, as measured by core inflation, is expected to average between 2.0% – 3.0% in 2022 as demand continues to improve amid the high-cost environment. Nevertheless, the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy,” it said.
The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures.
“Amid the positive growth prospects for the Malaysian economy, the Monetary Policy Committee (MPC) has decided to further adjust the degree of monetary accommodation, consistent with the MPC’s view that the unprecedented conditions that necessitated a historically low OPR have continued to recede.
“At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth.”
The MPC will continue to assess evolving conditions and their implications on the overall outlook to domestic inflation and growth. Any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability.
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