KUALA LUMPUR: Bank Negara Malaysia (BNM) has decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent as it expects Malaysian economy to further expand this year.
The floor and ceiling rates for the OPR are correspondingly raised to three per cent and 3.50 per cent respectively.
With the economy firmly on a steady growth path, BNM said the Monetary Policy Committee (MPC) decided to normalise the degree of monetary accommodation.
“At the same time, the MPC recognises the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time,” the central bank said in a statement today.
At the current level of the OPR, the central bank said the stance of monetary policy remains accommodative.
The MPC will continue to assess the balance risks surrounding the outlook for domestic growth and inflation, it added.
For the Malaysian economy, the latest indicators reaffirm the strength in exports and domestic activity, Bank Negara said.
Looking ahead, the central bank expects Malaysia’s strong growth momentum to continue in 2018, sustained by the stronger global growth and positive spillovers from the external sector to the domestic economy.
“Domestic demand will remain the key driver of growth, underpinned by favourable income and labour market conditions,” it said.
BNM said the outlook for investment activity is also positive, driven by new and on-going infrastructure projects and capital spending by both export- and domestic-oriented firms.
The external sector will provide additional impetus to the economy, it added.
Inflation is expected to average lower in 2018, on expectations of a smaller effect from global cost factors, BNM said.
“A stronger ringgit exchange rate this year compared to 2017 will mitigate import costs. Global energy and commodity prices are expected to trend higher in 2018.
“However, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain. Underlying inflation, as measured by core inflation, remains moderate,” the central bank said.
Headline inflation averaged at 3.7 per cent in 2017.
NST Business