BANK Negara Malaysia (BNM) has increased the overnight policy rate (OPR) to 2.25%.

The central bank’s monetary policy committee decided on the increase of 25 basis points at a meeting today, as widely predicted by analysts following the last increase on May 11 by 25 basis points from 1.75%.

“The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.50% and 2.0%, respectively,” BNM said in a statement today.

Historically, the OPR had been at a record low of 1.75% for most of the Covid-19 pandemic, from July 2020 until May this year, when BNM raised it by 25 basis points to 2%.

The decision to raise the OPR comes amid positive growth prospects for the Malaysian economy, the central bank said.

“The monetary policy committee decided to further adjust the degree of monetary accommodation. This is consistent with its view that the unprecedented conditions that necessitated a historical low OPR have continued to recede.

“At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth,” BNM said.

Malaysia’s growth prospects are based on the reopening of the global economy and the improvement in labour market conditions, it further said.

These are also subject to inflationary pressures caused by higher commodity prices and strong demand conditions, and central banks are expected to continue adjusting their monetary policy settings to reduce inflationary pressures.

BNM also projected headline inflation to remain within the 2.2% to 3.2% forecast range for this year, and core inflation to average between 2% and 3%. 

“Demand (will) continue to improve amid the high-cost environment. Nevertheless, the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy.

“The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures.” – July 6, 2022.