Overall recovery trajectory on track despite Omicron hurdles, says Bank Negara

Bank Negara Malaysia (BNM) maintained the overnight policy rate (OPR) at 1.75% at its second Monetary Policy Committee (MPC) meeting of the year.

In a statement today, the central bank said the overall recovery trajectory remained on track despite the recent moderation in economic activity due to the Omicron-driven Covid-19 resurgences.

“Inflation in many economies remain elevated, due to both demand and supply factors. Going forward, more countries will transition to the endemic management of Covid-19, hence supporting global growth prospects,” it added.

However, it noted that the unfolding developments surrounding the military conflict in Ukraine had emerged as a key risk to global growth and trade prospects, commodity prices and financial market conditions.

“The global growth outlook will also continue to be affected by developments surrounding Covid-19, risks of prolonged global supply disruptions, and heightened financial market volatility amid adjustments in monetary policy in major economies,” the central bank said.

It said Malaysia’s growth recovery would strengthen in 2022 after recording a 3.1% growth last year, driven by the expansion in global demand and higher private sector expenditure, amid improvements in the labour market and continued targeted policy support.

The expected reopening of international borders will also provide further support to economic recovery, it said.

BNM noted that the economic impact from the recent increase in Covid-19 cases due to the Omicron variant was expected to be less severe than previous waves in the absence of stringent restrictions.

“Risks to the growth outlook remain tilted to the downside due to external and domestic factors. These include a weaker-than-expected global growth, ongoing geopolitical conflicts, worsening supply chain disruptions, and developments surrounding Covid-19,” it added.

Meanwhile, headline inflation in 2022 is projected to remain moderate as the base effect from fuel inflation continues to dissipate.

BNM said the underlying inflation, as measured by core inflation, is expected to normalise to around its long-term average as economic activity continues to pick up amid the environment of high input costs.

“Nevertheless, core inflation is expected to be modest, with the upside risk partly contained by the continued slack in the economy and labour market.

“The inflation outlook continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions.

“The MPC considers the current stance of monetary policy appropriate and accommodative. Fiscal and financial measures will continue to provide support to economic activity,” it added.

Amid the prevailing uncertainties, it said the stance of monetary policy would continue to be determined by new data and its implications on the overall outlook for domestic inflation and growth.