November 16, 2015

At its last monetary policy meeting of the year on 5 November, Bank Negara Malaysia (BNM) decided to maintain the Overnight Policy Rate (OPR) at 3.25%. The move was expected by the markets and marks the eighth consecutive meeting in which BNM has left the OPR unchanged after having raised it to its current level in July of last year. As the bank has consistently noted throughout the year, the policy stance has been accommodative against a backdrop of softening external demand and uncertainty in global financial markets.



In the accompanying monetary policy statement, the BNM commented on the disparity in global economic performance, as growth in Asian markets has slowed, while advanced economies have seen a more robust, albeit slow, recovery. Although volatility across global financial markets has diminished, instability arising from policy shifts in major economies, uncertainty surrounding commodity prices and adverse changes to investor sentiment all pose downside risks to market stability.



At home, the Malaysian economy has been adversely effected by external pressures. As demand for exports has moderated, Malaysia is counting on domestic demand to support growth over the coming year. Wage growth and a strong labor market will support household expenditure looking ahead, however, the Bank expects that a higher cost of living in the next year will put downward pressure on consumption. In terms of business activity, a slowdown in the energy sector has dragged on investment, while capital expenditure in the manufacturing and services sectors is contributing to growth.



The ringgit has been Asia’s worst performing currency so far this year, falling to levels not seen in over a decade. Despite the weak currency and a series of increases to regulated prices on a number of goods and services, inflation has been relatively modest thanks to low commodity prices. BNM sees inflation gradually increasing and peaking in the first quarter of 2016. This permits BNM to keep the OPR at its elevated level for the time being without having to yield to downward pressure of inflation. Despite recent turbulence in Malaysian financial markets, the Bank reaffirmed that the system remains well capitalized and that it is supporting growth, stating that although, “global and domestic developments have continued to affect the ringgit exchange rate and domestic financial markets (…) liquidity continues to be sufficient and the financial system remains sound with healthy growth in financing.”



Lastly, BNM reiterated that its policy stance is accommodative and that monitoring risks to growth is of primary concern. As it was the last meeting of the year, BNM also published its calendar for monetary policy meetings in 2016. The next meeting is scheduled to be held on 21 January.

The panel of 22 economic analysts we surveyed for this month’s Consensus Forecast expect the monetary policy rate to end this year at 3.25%. Our panel expects the policy rate to climb to 3.50% by the end of 2016.