AmWatch - Economic Update : BNM maintains accommodative monetary policy, 10 Jul 2015

FOCUS OF THE DAY

Economic Update : BNM maintains accommodative monetary policy

Bank Negara Malaysia has decided to maintain the Overnight Policy Rate (OPR) at 3.25% at the Monetary Policy Committee (MPC) meeting yesterday.

According to the monetary policy statement, the downside risk to the global economic outlook remains on the back of diverging growth momentum across economies amid a moderate pace of expansion.

Uncertainties in the policy environment are also contributing to the shift in sentiments in international financial markets.

For Malaysia, the latest indicators point to continued expansion of the economy during the second quarter, albeit at a more moderate pace.

Private consumption is expected to moderate as households adjust to Goods and Services Tax (GST) effective 1 April 2015.

As for inflation, BNM anticipates headline inflation to trend higher going forward given the impact of GST and the recent adjustments to domestic fuel prices.

That said, cross currents in terms of global monetary policy decisions and uncertainties on the domestic front signal continued forex volatility in the months ahead.

BNM will continue to monitor and ensure an orderly fluctuation of the Ringgit currency.

As at end-June, the reserves level dipped by 9.0% YTD to USD105.5bil. When compared to the peak of USD141.4bil in May 2013, reserves had declined by 25.4%.

That said, reserves at BNM are sufficient to finance 8.2 months of retained imports and are 1.1 times short-term external debt.

Aside from that, we note that excess liquidity of financial institutions has been on a downward trend since May 2013. Liquidity surplus had stumbled by a cumulative 37.5% from an estimated RM390.3bil in May 2013 to RM244.0bil in end-May 2015

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