PETALING JAYA: The Monetary Policy Committee (MPC) of Bank Negara has increased the overnight policy rate (OPR) by 25 basis points to 2.25% amid positive growth prospects for the local economy. “For the Malaysian economy, economic activity continued to strengthen in recent months. “Exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity, “ the central bank said in a statement yesterday. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.5% and 2%, respectively. The OPR, which is a benchmark rate that allows banks to determine their lending and deposit rates, had been reduced by a cumulative 125 basis points during the course of the Covid-19 pandemic, bringing it to a historic low of 1.75%. Yesterday’s increase was a second consecutive one after a 25-basis-point hike in May, which was also the first time the OPR was raised since the onset of the pandemic.
.In its statement, the central bank said 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.
“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% and 3% in 2022, as demand continues to improve amid the high-cost environment,” it said.
Bank Negara said that in recent months, the unemployment rate had declined further, with higher labour participation and improving income prospects.
“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 April 1 would facilitate the recovery in tourism-related sectors.”
Nevertheless, the central bank warned of downside risks to growth that continue to stem from a weaker-than-expected global expansion, further escalation of geopolitical conflicts and worsening supply chain disruptions.
“Even as it continues to project a strengthening economic recovery, things are likely to turn less rosy from here,” OCBC’s Wiranto said.
Bank Negara said that at the current OPR level, the stance of monetary policy remained 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.
Rakuten Trade head of equity sales Vincent Lau told StarBiz yesterday’s hike was a reflection of confidence in the continued growth of the Malaysia economy.
“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.”
Meanwhile, Rakuten Trade head of equity sales Vincent Lau told StarBiz yesterday’s hike was a reflection of confidence in the continued growth of the Malaysian economy.
“With the increase in our benchmark rate, this may also stem the outflow of foreign money, which will technically see higher returns alongside the higher rate,” he said.
That said, the stock market fell over 20 points at the close yesterday after the hike was announced.
“It was probably a knee-jerk reaction as the hike had more or less been priced in already,” Lau said.
Bursa Malaysia’s fall was also in line with most regional markets as the fear of a global recession continued to rear its ugly head.
Nevertheless, at the close of the market yesterday, lenders like Malayan Banking Bhd
and CIMB Group Holdings Bhdfinished higher as investors bought the stocks, banking on a higher OPR that could likely boost the lenders’ earnings.
Still a good hedge against inflation
https://www.thestar.com.my/business/business-news/2022/07/07/still-a-good-hedge-against-inflation
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