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Malaysia’s economy recovering but inflation inflicting hardship on low-income households, BNM says
KUALA LUMPUR (July 26): Malaysia’s economy appears to be firmly on a recovery path, but ongoing inflation is inflicting hardship on certain segments, including low-income households, who have been disproportionately affected by rising price pressures, said Bank Negara Malaysia (BNM).
“There is some unevenness in the economic recovery… The rise in food prices in particular, has affected this group (low-income households) to a larger extent,” the central bank’s governor Tan Sri Nor Shamsiah Mohd Yunus said in her keynote address at the International Conference on Financial Crime and Terrorism Financing 2022 on Tuesday (July 26).
Although the direct impact from elevated oil prices on headline inflation has largely been dampened by price controls on fuel and essential food items, Nor Shamsiah said there are still indirect effects from high global commodity prices, as they are a key driver of the rise in producers’ input costs.
“Inflation developments in Malaysia this year reflect the pass-through of some of these costs, as well as the strengthening of domestic demand,” she said.
Consequently, she said although headline inflation is still projected to remain low and stable, ranging between 2.2% and 3.2% this year, core inflation averaged higher at 2.2% in the first half of 2022 versus 0.7% a year ago.
Therefore, the Monetary Policy Committee judged that it was the right time to withdraw the excess monetary support by raising the overnight policy rate in May and July this year, said Nor Shamsiah.
“What’s important is that by acting pre-emptively, we will be in a position to undertake adjustments to the monetary policy settings in Malaysia in a measured and gradual way to avoid hindering economic recovery,” she said.
“Let me emphasise that monetary policy in Malaysia continues to be accommodative to support a sustainable economic growth in an environment of price stability,” she added.
Nor Shamsiah also said the central bank continues to use the tools at its disposal to ensure movements in the ringgit are orderly, in an environment of aggressive monetary policy tightening by the US Federal Reserve.
“Relative to the dollar, most major and regional currencies — including the ringgit — have depreciated. However, the ringgit has remained broadly stable when compared against currencies of our major trade partners. In fact, Malaysia’s nominal effective exchange rate registered only a marginal depreciation of around 0.1%,” she noted.
Nonetheless, Nor Shamsiah acknowledged that there is a need for measures to address the country’s long-term vulnerabilities while boosting its resilience against future shocks, by attracting more quality investments, embracing the sustainability agenda and reform subsidy system to be more targeted to strengthen the social protection framework.
Source: https://www.theedgemarkets.com/article/malaysias-economy-recovering-inflation-inflicting-hardship-lowincome-households-bnm-says