Bank Negara maintains OPR at 3%

KUALA LUMPUR: Bank Negara
has maintained the overnight policy rate (OPR) at 3% after the monetary
policy committee (MPC) meeting yesterday, a move widely expected by
economists.
The central bank said headline inflation was expected to remain moderate for the remainder of 2012.
Alliance Investment Bank Bhd chief economist Manokaran Mottain said Bank Negara’s move to maintain the OPR was expected.
He
said the last time the central bank reviewed the OPR was in May 2011,
with a 25-basis point hike. Since then, the benchmark policy rate has
been maintained at 3%.
In a statement, the central bank said the
pace of the global recovery had moderated in the recent months. It
added that the latest data pointed to slower economic activity and more
challenging growth prospects in several regions around the world.
Bank
Negara said although pressures in the international financial markets
have receded following the recent policy announcements to address the
European crisis, a number of important policy issues remain unresolved
and continue to unsettle financial markets.
“Economic activity
in several of the advanced economies continues to be affected by
ongoing fiscal consolidation, impaired financial intermediation and
weak labour market conditions. In emerging economies, while domestic
demand remains an important source of growth, exports are affected by
weak external demand.”
In the domestic economy, recent data and
surveys of business conditions suggest that consumption and investment
activity remains resilient.
Looking ahead, Bank Negara said domestic demand would continue to be the anchor of growth.
“Household
spending continues to be supported by stable employment conditions and
income growth. The strong investment activity is mainly led by the
domestic-oriented industries, the oil and gas sector and the steady
progress in the construction of infrastructure projects,” it said.
adding that headline inflation was expected to remain moderate for the remainder of 2012.
The
central bank said with some excess capacity in the economy, the
strength of domestic demand was not expected to result in inflationary
conditions.
“Global energy and commodity prices are likely to be
contained given the weak global conditions. However, upside risks to
inflation could emerge should disruptions to global supply result in
higher global prices for these commodities,” it added.
In the
MPC’s assessment, there continues to be considerable uncertainties in
the global economic and financial environment. The MPC will continue to
carefully assess these evolving conditions and their implications on
the overall outlook for inflation and growth of the Malaysian economy.
Going
forward, Manokaran expects the central bank to keep the rate steady, as
long as growth remains healthy coupled with low inflation based on
several assumptions.
Firstly, he said, at least a break-up of
the Eurozone was avoided for now after the recent Greece elections and
EU Summit, but a deeper recession appears certain. “Our outlook for a
base-case for Malaysia is fitting – we are now projecting a slower
gross domestic product (GDP) growth of 4.2% for this year, decelerating
from 5.1% last year.”
“In the short-term, we expect real GDP
growth to stay around 4% in second quarter 2012, moderating from 4.7%
in first quarter – in line with the recent slowdown in economic
activities and increasing vulnerability to the major industrial
economies. The growth is still supported by strong domestic demand,
though moderating from 10.4% in the final quarter of last year, to 7.4%
in second quarter,” Manokaran said.
“With regard to inflation,
we expect further moderation in prices ahead, at least for the next one
quarter, on account of the impact of easing global commodity prices,
global economic slowdown and weakening domestic demand. We expect price
growth to moderate to between 1.4%-1.6% in this quarter, from 1.7% in
May. Overall, we are now forecasting the consumer price index to hit 2%
in 2012, moderating sharply from 3.2% last year.”