Bank Negara Malaysia has announced its decision to hold the Overnight Policy Rate steady at 3%, citing robust domestic economic growth, while also acknowledging potential inflation risks that may arise in the future. According to the central bank, the Malaysian economy recorded a significant expansion of 5.1% in the first half of 2024.
This growth has been bolstered by strong domestic expenditure and increased export activities, as highlighted in a prepared statement by the bank. Employing a comprehensive analysis of current market indicators, Bank Negara Malaysia noted that both employment and wage growth remain strong. Furthermore, the nation's tourism sector is anticipated to show continuous growth, thanks to the recovery of international travel from the disruptions caused by the pandemic. Remarkably, the central bank has maintained the policy rate unchanged since May 2023, showcasing a careful approach in response to the evolving economic landscape.
On the inflation front, the bank reported that both 'headline and core inflation averaged 1.8% in the first half of 2024,' based on the country’s consumer price index (CPI). For the entirety of 2024, the central bank's forecast indicates that inflation will remain within previously projected ranges of 2.0% to 3.5% for headline inflation and between 2.0% to 3.0% for core inflation.
This outlook reflects the bank's ongoing assessments of the economic environment. The central bank further elaborated on the potential risks affecting inflation, identifying that any upside risks would depend significantly on the impact of domestic policy measures—such as subsidies and price controls—on overarching price trends.
Additionally, global commodity prices and financial market developments are crucial factors that could influence these risks. Interestingly, the Malaysian ringgit has been appreciating against a backdrop of expectations of easing monetary policies from major global central banks, including the US Federal Reserve.
As the central bank noted, there have been growing concerns regarding the softer exchange rate of the ringgit, prompting a careful examination of currency fluctuations in recent policy discussions. Distinctively, Bank Negara Malaysia does not operate under a formal inflation target. Instead, it aims to facilitate a monetary policy framework that promotes a stable and predictable increase in the overall price level of goods and services, showcasing a unique approach among its global counterparts.
By keeping the monetary environment stable, the bank aims to foster continued economic activity while managing inflationary pressures effectively..