Malaysia: Monetary policy to remain supportive to ensure economic growth sustainability, price stability, says BNM
KUALA LUMPUR (March 29): Bank Negara Malaysia (BNM) said its monetary policy considerations will continue to focus on managing inflation risks while supporting sustainable economic growth, in view of a more moderate economic growth projected.
In its Economic and Monetary Review 2022 released on Wednesday (March 29), the central bank also said its Monetary Policy Committee (MPC) will continue to assess the cumulative impact of past overnight policy rate hikes in 2022 in formulating any future decisions, given the lag effects of monetary policy on the economy.
The MPC is also mindful of the potential upside risks to domestic inflation due to “persistent inflationary pressures”, it noted.
However, the risks to growth are fairly balanced as a stronger domestic outlook offsets the weak global growth.
“While global cost factors have shown signs of moderation, inflationary pressures continue to depend on global commodity price and financial market developments, as well as changes in domestic policies on subsidies and price controls. More fundamentally, amid risks from changes to price setting behaviour, monetary policy will also need to consider the inflation dynamics that will prevail as shorter-term supply shocks abate,” it noted.
Given that the current environment remains uncertain, the MPC’s decisions will continue to depend on the evolving conditions and their implications for the overall outlook of domestic inflation and growth, it said.
“Any potential adjustments to the degree of monetary accommodation will be carefully calibrated, taking into consideration the balance of risks surrounding inflation and growth,” it added.
Demand for financing to be sustained on continued expansion of economic activities
Meanwhile, demand for financing is expected to be sustained in 2023 — notwithstanding the previous adjustments in interest rates — due to the continued expansion of economic activity and improvement in labour market conditions, the central bank said.
There are, however, risks to domestic financial conditions arising from tighter monetary policy globally, concerns surrounding geopolitical conflicts, and the impact of China’s economy reopening.
“In addition, there has been increased global market volatility amid elevated stress in the global banking sector, albeit posing minimal impact on Malaysian financial assets. Despite these challenges, adjustments to domestic financial markets are expected to remain orderly,” said BNM.
Any adverse impact of outflows and spillovers to financial intermediation will be contained by the presence of domestic institutional investors and the strength of the domestic banking system, it added.
Macroeconomic adjustments due to external shocks, on the other hand, are facilitated by the flexibility of the exchange rate, it noted.
“Moreover, the bank’s liquidity and foreign exchange operations will mitigate excessive market volatility to ensure orderly functioning of financial markets,” it added.
Don’t miss the other highlights of the BNM Annual Report 2022. Read the articles here.