BANK Negara Malaysia (BNM) has increased the overnight policy rate (OPR) by 25 basis points to 3.25% in a monetary policy meeting (MPC), as it decides to normalise the degree of monetary accommodation amid the economy being firmly on a steady growth path.

“The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3% and 3.5%, respectively,” the central bank said in a statement today.

The last time BNM changed its key rate was in July 2016, when it made a 25 basis-point cut.

“At the same time, the MPC recognises the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time.”

At the current level of the OPR, the monetary policy’s stance remained, it said, adding that “the MPC will continue to assess the balance of risks surrounding the accommodative outlook for domestic growth and inflation”.

It said the global economy had strengthened further, with growth becoming more entrenched and synchronised across regions, while global trade continued to sustain a strong growth performance.

“Global growth is projected to experience a faster expansion in 2018. In this environment, risks to the global growth outlook are more balanced, pointing towards continuity in the current phase of global economic expansion.”

For the Malaysian economy, the latest indicators reaffirm the strength in exports and domestic activity.

“Looking ahead, the strong growth momentum is expected to continue in 2018, sustained by stronger global growth and positive spillovers from the external sector into the domestic economy.

“Domestic demand will remain the key driver of growth, underpinned by favourable income and labour market conditions,” said the bank.

The outlook for investment activity was also positive, it said, driven by new and ongoing infrastructure projects and capital spending by both export- and domestic-oriented firms.

The sector will provide additional impetus to the economy. Overall, growth is expected to remain strong this year.

Headline inflation averaged at 3.7% last year. Inflation is expected to average lower this year, on expectations of a smaller effect from global cost factors.

BNM said a stronger ringgit exchange rate compared with last year would mitigate import costs.

As at 3.25pm, the ringgit stood at 3.8950/9000 versus the US dollar. It opened at 3.9010/9040 against the greenback, from yesterday’s close of 3.9110/9140.

“Global energy and commodity prices are expected to trend higher in 2018. However, the trajectory of headline inflation will be dependent on future global oil prices, which remain highly uncertain,” said BNM.

Underlying inflation, as measured by core inflation, remains moderate. Domestic financial markets have been resilient.

The ringgit has strengthened to better reflect economic fundamentals.

Banking system liquidity remained sufficient, with financial institutions continuing to operate with strong capital and liquidity buffers, the bank said, adding that the growth of financing to the private sector had been sustained and was supportive of economic activity. – Bernama, January 25, 2018.