Bank Negara Malaysia's (BNM) Monetary Policy Committee (MPC) has decided to maintain the overnight policy rate (OPR) at 1.75%, with the central bank citing the continued improvement in the global economy given the easing of containment measures across more economies and strong policy support.
In its Monetary Policy Statement, the bank said the reopening of production facilities led to a resumption of manufacturing and trade activities, although the recovery in the service sector has been slower.
"Financial conditions have improved, although risk aversion remains elevated. The outlook is still subject to downside risks and uncertainties, primarily due to the risk of a resurgence of the pandemic and weaker labour market conditions," it said.
Economic activity in Malaysia continues to recover from the trough in April and the latest high frequency indicators show that labour market conditions, household spending and trade activity have continued to improve.
The economic recovery is also supported by the fiscal stimulus packages, as well as monetary and financial measures.
"Looking ahead, the improvement is expected to continue into 2021, supported by the recovery in external demand and expansion in private sector expenditure.
"However, the pace of recovery will be uneven across sectors, with economic activity in some industries remaining below pre-pandemic levels, and a slower improvement in the labour market," said BNM.
The outlook is still subject to downside risks, given the ongoing uncertainties surrounding the course of the pandemic domestically and globally.
Inflationary pressures are expected to remain muted in 2020, the bank said, with headline inflation likely to average negative in 2020 amid lower global oil prices, although it is expected to average higher in 2021.
However, the outlook will continue to be affected by global oil and commodity prices.
"The cumulative 125 basis points' (bps) reduction in the OPR this year will continue to provide stimulus to the economy. Given the outlook for growth and inflation, the MPC considers the stance of monetary policy to be appropriate and accommodative.
"The bank remains committed to utilising its policy levers as appropriate to create enabling conditions for a sustainable economic recovery," said the central bank.
BNM has slashed the OPR four consecutive times since the start of the year, starting with the two 25bps cuts during the January and March meetings, followed by a 50bps cut in May and another 25bps cut in July.
Source: The Edge Markets