As expected, Bank Negara Malaysia (BNM) decided to maintain the Overnight Policy Rate (OPR) at 2.75% yesterday. This was the 3rd time in a row that BNM left it unchanged. Are there any hints by BNM on Malaysia's economy this year? We can explore the "hidden messages" from the monetary policy statement as below:
- While advanced economies continue to register modest growth, most emerging economies have experienced strong growth.
- For Asian region, domestic economic activity continues to support the growth momentum amid weaker external demand.
- Shifts in global liquidity have resulted in significant capital flows into the emerging economies, in particular, Asian region, and have brought with it risks to macroeconomic and financial stability.
- The region is also being affected by global inflationary pressure arising from the higher commodity and food prices.
- Recent indicators point towards a sustained expansion in private sector activity.
- External demand, however, was affected by the slower global growth.
- Malaysian economy is expected to grow at a steady pace in 2011, underpinned by continue firm expansion in domestic demand.
- Private consumption will be supported by sustained employment and income growth.
- Private investment activity will be supported by domestic-oriented sectors and the expansion of new growth industries.
- Domestic headline inflation rose towards the end of 2010 albeit remained low at 2.2%.
- The increased was mainly on account of higher food and energy prices.
- Prices are expected to increase at a modest pace in the coming months, driven primarily by rising global commodity and food prices.
- The assessment is that inflation will continue to be driven by supply factors with limited evidence of excess demand exerting pressure on prices.
- BNM considers the current monetary policy stance as appropriate and consistent with current assessment of the economic growth and inflation prospects.
- The stance continues to remain accommodative and supportive of economic growth.
- Going forward, additional policy tools such as the statutory reserve requirement (SRR) and macro-prudential lending measures may be considered to avoid the risks of macroeconomic and financial imbalances.
- We expected inflation to rise at a faster pace in 2011
- BNM to continue hiking interest rate in second-half 2011
- OPR potentially be raised by 50-75 basis points to 3.25-3.50%
- Bank's loan growth will slow if SRR was raised
For full BNM monetary policy statement, click here.
70% Loan to Value
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