Malaysia maintains rate, sees 2016 growth of 4% - 5%

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

The global economy continues to grow at a moderate pace. The economic recovery in the major advanced economies has remained modest. While growth has slowed in most of Asia, the region continues to record positive growth that is being supported by domestic demand. Volatility in the international financial markets has receded, but markets will continue to be affected by shifts in global liquidity and investor sentiments. Going forward, downside risks to global growth remain high arising from the moderating growth momentum in a number of major economies, uncertainty surrounding energy and commodity prices and possible disorderly market conditions arising from policy shifts in major economies.

The performance of the Malaysian economy continues to be affected by the weak external environment.  Domestic demand therefore remains the main driver of growth. Private consumption is, however, expected to moderate as households continue adjusting to the higher cost of living amidst an uncertain economic environment. Household spending will nevertheless be supported by wage growth and stable labour market conditions. Despite the slowing investment activity in the oil and gas industry, investment is being supported by infrastructure development projects and capital spending by the manufacturing and services sectors.

Looking ahead, domestic demand will continue to be the key driver of growth, with an additional lift from exports as global growth improves.  The Malaysian economy will continue to benefit from having diversified sources of growth, economic flexibility, low unemployment, manageable level of external debt and a well-capitalised banking system. The prospects are for the economy to expand within the region of 4.5 to 5.5 percent this year and 4 to 5 percent in 2016.  It is, however, recognised that the downside risks to growth remain high.

Headline inflation averaged at 2.8% in August and September, and is expected to remain relatively stable for the rest of 2015. Despite the weaker ringgit exchange rate, the impact on overall inflation has been limited by the lower commodity prices and the generally low global inflation. For 2016, headline inflation is expected to be higher, to peak in the first quarter and moderating thereafter.

Global and domestic developments have continued to affect the ringgit exchange rate and domestic financial markets. In this environment, however, domestic liquidity continues to be sufficient and the financial system remains sound with healthy growth in financing. Financial intermediation has therefore continued to support the economy.  Bank Negara Malaysia will continue to ensure the orderly functioning of the money and foreign exchange markets.

At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC recognises that there are heightened risks in the global economic and financial environment. These risks are being carefully monitored to assess their implications on macroeconomic stability and the prospects of the Malaysian economy. This is to ensure that the monetary policy stance is consistent with the sustainability of the overall growth prospects.

The meeting also approved the schedule of MPC meetings for 2016. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year. The meetings will be held over two days, with the Monetary Policy Statement released at 6 p.m. on the second day of the MPC meeting.”