KUALA LUMPUR: Malaysia's economy is expected to expand between six per cent and 7.5 per cent this year, Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said.
This is against a 5.6 per cent gross domestic product (GDP) contraction in 2020.
Nor Shamsiah said the GDP was likely to return to pre-Covid-19 levels by mid-2021.
She said this would be supported by the improving external demand amid technology upcycle, less stringent containment measures and Covid-19 vaccine rollout, gradual improvement in labour market conditions, as well as continued policy support for households and businesses during the year.
"Malaysian economy is projected to rebound in 2021, with the GDP achieving pre-Covid-19 levels by mid-2021. And in our forecast, we assumed herd immunity will only be achieved in the first quarter of 2022.
"We also assumed that the international borders will remain closed for this year and the Movement Control Order (MCO) will be highly targeted," she said at a virtual press conference in conjunction with the release of Bank Negara's Annual Report 2020, Economic and Monetary Review 2020 and Financial Stability Review Second Half 2020 today.
Nor Shamsiah said while heightened downside risks to growth remained, the immediate policy focus of the bank was to facilitate a strong and sustainable recovery and minimise permanent output losses.
She said monetary policy in 2021 would therefore remain accommodative to support an enhanced and sustained economic growth.
Meanwhile, Nor Shamsiah said headline inflation was expected to average between 2.5 per cent and four per cent in 2021, from a contraction of 1.2 per cent in 2020, mainly due to higher global oil prices.
She said although headline inflation was expected to rise, it would be driven mainly by supply side factors.
Nor Shamsiah said underlying price pressures, on the other hand, would remain subdued with core inflation projected to be between 0.5 per cent and 1.5 per cent amid spare capacity in the economy.
"The bank will continue to utilise its policy levers as appropriate," she added.
She said even with the Overnight Policy Rate at its current historical low of 1.75 per cent, monetary policy space remained adequate to provide additional support to the economy if needed.
"The bank will be mindful to avoid a premature withdrawal of monetary policy support. This is complemented by the availability of the bank's various liquidity management tools, targeted financial policies and regulatory flexibilities.
"All these afforded the bank with sufficient flexibility to respond to risks using the most appropriate policy tool," she said.