Thursday, January 29, 2015

BNM Watch: OPR Stays At 3.25%

Yesterday’s MPC statement came in more hawkish than expected (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….

…Volatility in the international financial markets has increased amid shifts in global liquidity and heightened uncertainty particularly with regard to global growth prospects and the decline in commodity prices….

…For Malaysia, economic activity continues to be supported by growth in domestic demand amid a moderation in exports in the fourth quarter of 2014. Going forward, domestic demand will remain as the key driver of growth….While export growth will be affected by lower commodity prices, the performance of manufactured exports is expected to improve. The prospects are therefore for the Malaysian economy to still remain on a steady growth path…With the implementation of the managed float pricing mechanism for fuel, the outlook for headline inflation would be subjected to the volatility of oil prices. Nevertheless, the expectation is for underlying inflation to remain relatively stable, amid the more moderate demand conditions.

At the current level, the stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions…The MPC will also continue to monitor the risks of destabilising financial imbalances. This is to ensure that the monetary policy stance is consistent with the sustainability of the growth prospects of the Malaysian economy.

The OPR staying where it is at 3.25% was widely expected…the comment about financial imbalances was not. There was speculation in the market last week that BNM would follow other central banks around the globe in easing policy. The expressed concern over financial imbalances means that, unless growth really surprises on the downside, the likelihood of that happening just went to near zero.


  1. . Maybe I am wrong but I see the good lady being contradictory in there for the first time in a while. Well,there is always a first time! hahaha

    Contradiction? DD set to grow but OPR stays at 3.25%. I thought with the headwinds on externally, DD would be dampened to a certain extent so why not titillate it with an OPR at 3.00% since inflation is going to be on the back burner anyway. Well thats just my two cents but probably HHD (which I talked about last year in a lengthy skirmish with you and which was proven to be a major driver of growth as noted by recent reports) is bugging her or she is spooked by one-off GST induced rises plus she didnt want BNM to be perceived as "loose moraled (sic)" by the likes of Fitch........hahahahaahaha

    2.Me spamming you?Lets say I am putting my computer skills to good use....;D

    3. Hayek? A couple of years ago I was flipping through "Denationalisation of Money" when that speech by Greenspan which @phantom linked to and you raved about came to my know "efficient markets and all that stuff' Alan mentioned in his speech sounds pretty redolent of Hayekism aint it.....

    Dont worry, many of us are closet Hayeks anyway...(wink, wink) though I think he was a good man..only misunderstood.....

    Warrior 231

    p/s : I was just wondering why do tax havens rarely if ever suffer financial crisis. I noticed that , did you? I mean all that hogwash about being prudent doesn't wash given the data. You have an inkling or is it simply cos they are storehouses of OPiuM and so are deemed immune......

    1. Which particular "tax haven" do you have in mind?

      It can't be the one favoured by Malaysian VVIPs (including those who are chauffeured around in the best of the British and German automobile industries - , can it?

      Anyways, back to BNM. I don't see that it had a much of a choice in deciding to stay the course on the OPR.

      The government may still be gung-ho about the economy going into 2015, but the "market" is more sceptical.

      And those at the helm now are, unlike Tun Dr Mahathir, less inclined to spit in the face of "markets" and more inclined to let the Fed call the shots.

  2. The MIER economic outlook for Q4 2014 doesn't seem to be very encouraging.

    The report reiterates the need for "structural reforms", among other things.

    That's something that BNM can't do anything about, because it needs political will and a commitment from the highest levels of government to push through and implement.

    There will be plenty of naysayers, especially those who want to protect the status quo and those who view structural reforms as a threat to the "bumiputra agenda" and "vested interests".