BNM Watch: No Change In OPR

Don’t think anybody expected anything more (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 economy continues to experience modest growth...Although global monetary conditions remain highly accommodative, market uncertainties on the direction of policy have resulted in substantial volatility in global financial markets. The reversal of capital flows from the emerging economies following a prolonged period of strong inflows has resulted in the depreciation of emerging market currencies.

In the Malaysian economy, domestic demand has continued to support growth amid the weaknesses in external demand. Going forward, economic growth is expected to be underpinned by the continued expansion in domestic activity...The impact of subsidy adjustments on consumption spending is expected to be contained by targeted financial assistance. Domestic investment activity which has been robust will continue to be led by capital spending in the domestic-oriented industries and the ongoing implementation of infrastructure projects. Overall growth prospects, however, could be affected by risks in the global economy and international financial markets...

...Going forward, inflation is expected to increase in the remainder of the year and into 2014 resulting from domestic cost factors, including subsidy adjustments...

...In the MPC’s assessment, there are increased uncertainties to the balance of risks surrounding the outlook for domestic growth and inflation...

Nominal GDP growth has been poor, but there’s a potential for a turnaround with higher oil prices, which could boost prices all around. We’re also seeing slower growth in credit and in the money supply. If anything, the bias to policy should still be on the downside – I don’t think the MPC is going to be panicked into doing something silly like trying to “defend” the currency. Currency weakness in fact plays into BNM’s hands, by lowering relative prices and a de facto loosening of monetary policy, even if the primary policy instrument is not adjusted.