BNM'S MONETARY POLICY CONTINUES TO BE DIRECTED AT ENSURING LIQUIDITY

KUALA LUMPUR, April 3  -- Bank Negara Malaysia’s (BNM) monetary operations in 2020 continues to be directed at ensuring sufficient liquidity in the foreign exchange, bond and money markets to ensure uninterrupted financial intermediation.

The central bank said in its role to promote monetary stability, it formulates and conducts monetary policy to keep inflation low and stable while ensuring that it is supportive of sustainable economic growth.

”A key role of BNM is to implement a monetary policy that maintains a low and predictable pace of increase in the prices of goods and services, taking into consideration existing economic developments.

“We are also mandated to promote an exchange rate regime consistent with the fundamentals of the economy,” BNM said in its annual report 2019 released today.

With the world facing COVlD-19, BNM said it will focus on managing the impact of this unprecedented global health crisis on the Malaysian economy.

In this regard, the Monetary Policy Committee (MPC) will continue to assess all relevant data, as well as economic and monetary developments in arriving at the appropriate monetary policy response.

“We will also continue to provide independent and professional advice to the government on appropriate policy measures to see Malaysia through these challenging times,” BNM said.

Looking back in 2019, the central bank said it was a challenging year which saw globally, unresolved trade tensions, a slowdown in investments and trade activity, heightened financial market volatility, country-specific risks and geopolitical uncertainties.

As a highly open economy, Malaysia was affected by these global developments, while weakness in investment activity and supply disruptions in the commodities sector also affected domestic economic activity.

Economic growth expanded by 4.3 per cent in 2019 (2018: 4.7 per cent), driven by private sector spending particularly in household spending which was supported by continued income and employment growth, as well as government measures.

Meanwhile, price pressures were subdued throughout the year with lower headline inflation averaged at 0.7 per cent in 2019 (2018: 1.0 per cent), mainly due to policies on retail fuel prices and festive price control, as well as the changes in consumption tax policy in 2018 which resulted in lower price pressures.

“As the effect of monetary policy takes at least two or three quarters to be felt in the economy, the MPC, in making its decisions, assesses and deliberates on the outlook for both domestic economic growth and inflation

 “The MPC also takes into consideration the risk that financial imbalances may pose to the broader economy,” BNM said.

 In 2019, the MPC in the May meeting decided to lower the Overnight Policy Rate (OPR) by 25 basis points to 3.00 per cent, where it remained for the rest of the year.

The decision to lower the OPR was made in view of providing a conducive monetary environment for a steady growth path amid price stability, it noted.

Monetary operations are undertaken by ensuring an appropriate level of liquidity is in the banking system to influence the average overnight interbank rate to remain around the OPR which, in turn, sets guidance for other interest rates in the economy.

“We also use various instruments in our monetary operations such as unsecured borrowings and repos of various short-term tenures to ensure there is sufficient liquidity in the domestic financial markets to support financial intermediation in the economy,” BNM said.

In November 2019, BNM said the Statutory Reserve Requirement (SRR)vratio was reduced from 3.5 per cent to 3.00 per cent to continue supporting the efficient functioning of the domestic financial markets.

SRR is an instrument used to manage liquidity typically when the excess liquidity in the banking system is large and long-term in nature.

On another note, the central bank said it also played roles to maintain the efficient and effective ringgit exchange rate as it is an important element in the economy, affecting the price of the exports, imports and level of foreign currency debt.

Malaysia maintains a flexible exchange rate policy for ringgit which has played an important role in ensuring that the economy is able to withstand external shocks.

Nevertheless, as an open economy that faces large cross-border capital flows, this flexibility can at times lead to volatility in ringgit movements, particularly when investor sentiments are strongly affected by global developments, the central bank said.

“In this regard, we continue to ensure that volatility in the exchange rate is not excessive so as not to disrupt domestic economic activity such as trade and investments.

This is achieved by providing sufficient liquidity at all times in the domestic foreign exchange market, including through our two-way foreign exchange interventions,” it added.

-- BERNAMA