Bank Negara Malaysia (BNM) increased the overnight policy rate (OPR) by 25 basis points to 2.25% during its fourth monetary policy committee (MPC) meeting this year.
The ceiling and floor rates of the OPR corridor are correspondingly increased to 2.50% and 2.00% respectively, BNM said in its monetary policy statement today.
"Amid the positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation. This is consistent with the MPC’s view that the unprecedented conditions that necessitated a historically low OPR have continued to recede.
"At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth," it said.
It added that the MPC would continue to assess the evolving conditions and their implications on the overall outlook for domestic inflation and growth.
Any adjustments to the monetary policy settings going forward will be done in a measured and gradual manner, ensuring that the monetary policy remains accommodative to support sustainable economic growth in an environment of price stability, it said.
The central bank also said the reopening of the global economy and improvement in labour market conditions continued to support the recovery of economic activities.
However, it added that these have been partly offset by the impact from rising cost pressures, the military conflict in Ukraine and strict containment measures in China.
"Inflationary pressures have continued to increase, mainly due to elevated commodity prices and strong demand conditions, despite some easing in global supply chain conditions," it said.
Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.
Going forward, the pace of global growth is expected to moderate and will continue to be affected by the elevated cost pressures, conflict in Ukraine, global supply chain conditions and financial market volatility.
"For the Malaysian economy, economic activities continued to strengthen in recent months. Exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity.
"In the labour market, the unemployment rate declined further, with higher labour participation and improving income prospects.
"Looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, economic growth will be supported by firm domestic demand," BNM said.
Additionally, the reopening of international borders since April 1 will facilitate recovery in tourism-related sectors, it said.
Investment activity and prospects continue to be supported by the realisation of multi-year projects, it said, adding that downside risks to growth however continued to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions.
BNM said that year-to-date, the headline inflation had averaged at 2.4%.
While this is projected to remain within the 2.2% to 3.2% forecast range for the year, headline inflation may be higher in some months, mainly due to the base effect from electricity prices, it said.
Underlying inflation, as measured by core inflation, is expected to average between 2.0% and 3.0% in 2022 as demand continues 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, BNM said.
The inflation outlook also 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.