BNM Watch: OPR Stays At 3.00%

Ho-hum (excerpt)

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global growth momentum has continued to be modest. Latest economic data suggests that the recovery is uneven while downside risks to global growth prospects remain…

…In the Malaysian economy, while the external sector is affected by global developments, domestic demand has continued to provide support to growth…

…Inflation remained low at 1.5% in the first quarter. While inflation is expected to continue to rise during the year, it is projected to remain modest…Nevertheless, given the modest global growth prospects, pressures from global commodity prices are likely to be contained…

There’s basically no change in the language of the communique, and hardly any change in the economic assessment, whether external or internal.

However, I continue to be troubled by the slowing growth in nominal GDP. Inflation is coming in well below expectations. Given the trends in commodity prices, we could see nominal growth decelerate even further during the past quarter – which suggests that an interest rate cut ought to be considered.

That’s something I doubt the Monetary Policy Committee would take on, given the way other metrics are behaving – the labour market is still tight, capacity utilisation is high, loan growth is still in double-digit territory, and real growth is slightly above trend. Nevertheless, none of these factors are translating into money in the wallets for Malaysians.

Productivity is almost everything, but that little bit that productivity doesn’t explain can be pretty important too.