Bank Negara keeps key interest rate at 3% on sustained economic activity in Q2

PETALING JAYA: Bank Negara Malaysia (BNM) has maintained the Overnight Policy Rate (OPR) at 3% as the latest domestic indicators point towards sustained economic activity in the second quarter (Q2) of 2024, driven by resilient domestic expenditure and better export performance.

In a statement issued in Kuala Lumpur today, the central bank noted that exports are expected to be further lifted by the global technology upcycle, given Malaysia’s position in the semiconductor supply chain and continued strength in non-electrical and electronic goods.

In addition, tourist arrivals and spending are poised to rise further while continued employment, wage growth, and policy measures will continue to support household spending.

BNM noted that the investment activity would be supported by the ongoing progress of multi-year private and public projects, catalytic initiatives under the national master plans, and the higher realisation of approved investments.

Meanwhile, the central bank noted that the growth outlook is subject to downside risks from weaker-than-expected external demand and larger declines in commodity production. Upside risks to growth mainly emanate from greater spillover from the tech upcycle, more robust tourism activity, and faster implementation of existing and new projects.

Headline and core inflation averaged 1.8% in the year’s first five months. As expected, inflation will trend higher in the second half of 2024 amid the recent rationalisation of diesel subsidies, it added.

“Nevertheless, the increase in inflation will remain manageable given the mitigation measures to minimise the

the cost impact on businesses,“ the central bank said.

Going forward, BNM said the upside risk to inflation would be dependent on the extent of spillover effects of further domestic policy measures on subsidies and price controls to broader price trends, as well as global commodity prices and financial market developments.

For the year, headline and core inflation are expected to average within the earlier projected ranges of 2%-3.5% and 2%-3%, respectively.

The ringgit continues to be primarily driven by external factors, namely expectations of major economies’ monetary policy paths and ongoing geopolitical tensions.

The positive impact of the coordinated initiatives by the government and BNM with the government-linked companies and government-linked investment companiesand corporate engagements have continued to cushion the pressure on the ringgit.

BNM said it will continue to manage risks arising from heightened financial market volatility.

Over the medium term, domestic structural reforms will provide more enduring support to the ringgit.

At the current OPR level, it added, the monetary policy stance remains supportive of the economy and is consistent with the current inflation and growth prospects assessment.

BNM said the Monetary Policy Committee (MPC) remains vigilant to ongoing developments to inform its assessment of domestic inflation and growth trajectories. “The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.”

On the international front, BNM said the global economy continues to expand amid resilient labour markets and continued recovery in global trade.

Looking ahead, global growth is expected to be sustained, as headwinds from tight monetary policy and reduced fiscal support will be cushioned by positive labour market conditions and moderating

inflation, the central bank said.

“Global trade continues to strengthen as the global tech upcycle gains momentum.

“The global headline and core inflation continued to edge downwards in recent months with some central banks commencing monetary policy easing.

“The growth outlook remains subject to downside risks, mainly from further escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and volatility in global financial markets,“ BNM said.