In line with market expectations, Bank Negara Malaysia (BNM) has opted to maintain its benchmark Overnight Policy Rate (OPR) at 3% during its fourth Monetary Policy Committee (MPC) meeting for 2024. The decision comes as the country enjoys sustained economic growth and benign inflation, providing a stable backdrop for future expansion.
According to a Bloomberg survey, all economists predicted that the central bank would maintain the OPR, and BNM’s decision was largely in line with market consensus. This marks the fourth of six scheduled reviews for 2024, with the central bank continuing its stance since its last rate hike in May 2023, where it raised the OPR by 25 basis points.
In a statement, BNM said, “At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.”
Malaysia’s Economy Surpassing Expectations
Malaysia’s economic performance in 2024 has been stronger than anticipated. The economy grew 5.9% year-on-year in the second quarter, fueled by increased household spending, robust business investments, and a strong export performance. On a seasonally adjusted basis, gross domestic product (GDP) rose by 2.9% quarter-on-quarter, reflecting resilience despite global uncertainties.
The government has forecasted an annual economic growth rate of 4% to 5%, buoyed by domestic and global economic activities. BNM has also kept the OPR unchanged for more than a year to support sustained growth, given the broader positive economic indicators.
“The latest indicators point towards sustained strength in economic activity driven by resilient domestic expenditure and higher export activity,” BNM added.
Global and Domestic Drivers of Growth
The central bank pointed to several factors that are driving growth, both globally and domestically. Malaysia is expected to benefit from the global tech upcycle, particularly in non-electronics goods exports. This surge in exports aligns with the broader global demand for technology-related goods, which is expected to further boost Malaysia’s export sector.
Tourism, which has seen a steady rebound since the easing of pandemic restrictions, is also expected to bolster the economy through increased tourist spending. Additionally, strong employment and wage growth coupled with supportive policy measures will continue to underpin household consumption, BNM stated.
Investment activity is projected to remain strong, with multi-year projects in both the private and public sectors driving long-term economic growth. The government’s infrastructure initiatives and foreign investment programs further highlight the strategic positioning of Malaysia as a regional business hub.
Inflation Outlook Remains Benign
In terms of inflation, both headline and core inflation averaged 1.8% in the first half of 2024, well within manageable limits. The containment of inflation has been aided by mitigation and enforcement measures, including policies to minimize the cost impact on businesses following the floating of diesel prices.
For the remainder of the year, average headline inflation is projected to range between 2.0% and 3.5%, while core inflation is expected to settle between 2.0% and 3.0%. BNM noted that inflation is “unlikely to exceed 3%” for the year, although the forecast remains subject to domestic policy changes and global economic developments.
“While the inflation outlook is highly dependent on domestic policy measures, risks remain from global commodity prices and financial market developments,” the central bank cautioned.
Monetary Policy: A Balanced Approach
BNM’s decision to hold the OPR reflects a balanced approach, aimed at maintaining a supportive monetary environment while keeping inflation in check. The bank’s statement emphasized that the current rate remains “appropriate” given the growth prospects and moderate inflation.
However, the central bank remains vigilant, signaling that it is prepared to adjust the OPR if inflationary pressures begin to mount. The monetary policy remains flexible, with BNM standing ready to raise rates if global energy prices or domestic price controls begin to push inflation upwards.
Ringgit Outlook: Positive Prospects Ahead
BNM also highlighted the ringgit’s potential, citing Malaysia’s positive economic prospects and structural reforms as factors that will provide “enduring support” for the currency. The ringgit has faced some volatility in recent times due to global economic factors, but BNM remains optimistic that domestic initiatives and reforms will keep the currency stable.
The ringgit’s performance will also be influenced by global monetary policy, particularly in relation to the US Federal Reserve. As global financial markets continue to fluctuate, Malaysia’s prudent economic policies and strategic trade ties are expected to keep the ringgit resilient.
Conclusion
As Malaysia enters the final months of 2024, Bank Negara Malaysia’s decision to maintain the OPR at 3% reflects a cautious yet optimistic outlook. With strong economic growth supported by domestic spending, rising exports, and controlled inflation, the country is poised to continue its upward trajectory.
The central bank’s focus on economic stability and prudent monetary policy ensures that Malaysia is well-positioned to navigate global economic challenges while capitalizing on emerging growth opportunities. As tourism rebounds, technology exports increase, and multi-year projects roll out, Malaysia’s economic future remains bright.
