BNM Watch: Saying Nothing At All

As expected, the Monetary Policy Committee meeting yesterday left the Overnight Policy Rate unchanged at 3.25% (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…the downside risks to the global economic outlook remain given the weak growth momentum in a number of major economies. The uncertainties in the policy environment are also contributing to the shift in sentiments in the international financial markets.

While the Malaysian financial markets have been affected by these global developments, there remains ample liquidity in the domestic financial system with continued orderly functioning of the financial markets….

…Going forward, domestic demand will remain as a key driver of growth…household spending will continue to be supported by the steady increase in income and employment.…The prospects are therefore for the Malaysian economy to still remain on a steady growth path….

…For the rest of the year, headline inflation is expected to trend higher, but to be below its historical average….

…At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity….The MPC will also continue to monitor the risks of destabilising financial imbalances to ensure the sustainability of the overall growth prospects.

Apart from that last line, which I interpret as saying that a rate cut is off the table (for now), there wasn’t a whole lot of difference between this statement and the previous one, except for minor changes in emphasis.

Given the current state of affairs – no, Malaysia is not in crisis and real growth will be fine, thank you very much – there appears little need to adjust the monetary policy stance.

I still worry over the decline in nominal GDP growth however, which predates the decline in oil prices, and suggests lower earnings and income momentum in the economy. On the other hand, 4Q2014 NGDP SAAR growth was a mite more positive at 5.2% in log terms (3Q: 2.8%), which means the trough was actually in the 3Q of last year, and we could be seeing a bounceback this year, GST headwinds and lower wage growth notwithstanding.

Next week, BNM will be issuing its 2014 annual report with updated forecasts for the economy this year. We’ll have a better idea BNM’s thinking then.