BNM Annual Report 2014 Malaysia's monetary stance takes cue from tamer inflation, downside growth risks - Bank Negara

by **Cals** Thu 12 Mar 2015, 01:03

BNM Annual Report 2014
Malaysia's monetary stance takes cue from tamer inflation, downside growth risks - Bank Negara

By Chong Jin Hun / theedgemarkets.com | March 11, 2015 : 6:01 PM MYT

KUALA LUMPUR (Mar 11): Bank Negara Malaysia said its monetary policy this year would be guided by a "contained" domestic inflationary trend and downside risks from global growth prospects.

According to Bank Negara Malaysia's latest annual report, the potential divergence in monetary policies of major economies such as the US, Europe and China would also influence Malaysia's monetary stance.

"Monetary policy in 2015 will focus on ensuring steady growth of the Malaysian economy amid contained risks to inflation. The operating environment for monetary policy will be shaped by a number of factors including external developments that would affect the overall outlook for the domestic economy.

"These include the considerable downside risks to the global growth prospects, the implications of a changed outlook for commodity prices, and the potential divergence in the monetary policies of the major economies," Bank Negara said.

According to Bank Negara, the country's inflation is deemed contained this year as cheaper crude oil translates into lower domestic fuel prices.

Bank Negara's headline inflation forecast, as measured by the consumer price index, is lower at between 2% and 3% in 2015. This compares to the 3.2% recorded in 2014.

"Going forward, the inflation rate could be subject to the volatility in global oil prices. Nevertheless, underlying inflation is expected to remain contained amid the stable domestic demand conditions," the central bank said.

Economic growth risk will be a greater concern for the central bank. According to Bank Negara, risks to the growth outlook for the Malaysian economy would emanate mainly from the external environment.

The central bank said the decline in commodity prices had raised concerns on growth prospects for net commodity exporters like Malaysia.

"The export sector is expected to remain resilient, with the continued growth in manufactured exports, mitigating the impact of lower commodity prices on commodity exports.

"Against a backdrop of continued uncertainty in the global economic and financial landscape, the key risks to the growth outlook for the Malaysian economy will therefore emanate mainly from the external environment," the regulator said.

Meanwhile, uncertainties on the magnitude and timing of monetary policy shifts in major economies is also crucial concern for Bank Negara.

As such, the central bank said it foresaw financial market volatility in terms of capital flow shifts during the year.

"Given the uncertain global economic outlook and the potential divergence in the monetary policies of the major economies, large shifts in capital flows can be expected to continue in 2015. Together with other emerging economies, Malaysia is also expected to experience volatile capital flows.

"However, the availability of a wide range of policy instruments, policy flexibility and sufficient buffers have improved Malaysia’s ability to manage these volatile capital flows.

In addition, a strong banking system and well-developed financial markets will be able to absorb and intermediate swings in capital flows without disruptions to financial intermediation or dislocations to underlying economic activities," Bank Negara said.
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KUALA LUMPUR (Mar 11): Bank Negara Malaysia said its monetary policy this year would be guided by a "contained" domestic inflationary trend and downside risks from global growth prospects.

According to Bank Negara Malaysia's latest annual report, the potential divergence in monetary policies of major economies such as the US, Europe and China would also influence Malaysia's monetary stance.

"Monetary policy in 2015 will focus on ensuring steady growth of the Malaysian economy amid contained risks to inflation. The operating environment for monetary policy will be shaped by a number of factors including external developments that would affect the overall outlook for the domestic economy.

"These include the considerable downside risks to the global growth prospects, the implications of a changed outlook for commodity prices, and the potential divergence in the monetary policies of the major economies," Bank Negara said.

According to Bank Negara, the country's inflation is deemed contained this year as cheaper crude oil translates into lower domestic fuel prices.

Bank Negara's headline inflation forecast, as measured by the consumer price index, is lower at between 2% and 3% in 2015. This compares to the 3.2% recorded in 2014.

"Going forward, the inflation rate could be subject to the volatility in global oil prices. Nevertheless, underlying inflation is expected to remain contained amid the stable domestic demand conditions," the central bank said.

Economic growth risk will be a greater concern for the central bank. According to Bank Negara, risks to the growth outlook for the Malaysian economy would emanate mainly from the external environment.

The central bank said the decline in commodity prices had raised concerns on growth prospects for net commodity exporters like Malaysia.

"The export sector is expected to remain resilient, with the continued growth in manufactured exports, mitigating the impact of lower commodity prices on commodity exports.

"Against a backdrop of continued uncertainty in the global economic and financial landscape, the key risks to the growth outlook for the Malaysian economy will therefore emanate mainly from the external environment," the regulator said.

Meanwhile, uncertainties on the magnitude and timing of monetary policy shifts in major economies is also crucial concern for Bank Negara.

As such, the central bank said it foresaw financial market volatility in terms of capital flow shifts during the year.

"Given the uncertain global economic outlook and the potential divergence in the monetary policies of the major economies, large shifts in capital flows can be expected to continue in 2015. Together with other emerging economies, Malaysia is also expected to experience volatile capital flows.

"However, the availability of a wide range of policy instruments, policy flexibility and sufficient buffers have improved Malaysia’s ability to manage these volatile capital flows.
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