KUALA LUMPUR: Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) has decided during today’s meeting to increase the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent.

BNM said the ceiling and floor rates of the corridor of the OPR had been increased to 3.25 percent and 2.75 percent, respectively.

In a statement, the central bank said the global economy continued to be driven by resilient domestic demand supported by strong labor market conditions and a stronger-than-expected rebound of China’s economy.

“Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates. Headline inflation continued to moderate, but core inflation has persisted above historical averages.

“For most central banks, the monetary policy stance will likely remain tight. The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation out-turns, and a sharp tightening in financial market conditions, including from further stress in the banking sector,” it said.

For the Malaysian economy, BNM said the latest developments pointed towards further expansion in economic activity in the first quarter of 2023 after the strong performance in 2022.

“While exports are expected to moderate, growth in 2023 will be driven by domestic demand,” it said.

BNM also highlighted that household spending remained resilient, underpinned by better labor market conditions as unemployment continues to decline to pre-pandemic levels, with the pickup in tourist arrivals expected to lift tourism-related activities.

It said further progress of multi-year infrastructure projects would also support investment activity while domestic financial conditions also remain conducive to financial intermediation, with no signs of excessive tightening affecting consumption and investment activities.

BNM said that risks to the domestic growth outlook are relatively balanced, with upside risks mainly emanating from domestic factors such as stronger-than-expected tourism activity and implementation of projects, including those from the re-tabled Budget 2023, while downside risks stemming from weaker-than-expected global growth and more volatile global financial market conditions.

As expected, it said headline inflation trended lower in recent months on account of moderating cost factors.

“Both headline and core inflation are expected to moderate throughout 2023, averaging between 2.8 percent to 3.8 percent.

“However, core inflation will remain at elevated levels amid firm demand conditions. Existing price controls and fuel subsidies will continue to partly contain the extent of upward pressures to inflation,” the central bank said.

BNM said that the balance of risk to the inflation outlook is tilted to the upside and remained highly subject to any changes to domestic policy, including subsidies and price controls, financial market developments, and global commodity prices.

“With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalize the degree of monetary accommodation.

“With this decision, the MPC has withdrawn the monetary stimulus intended to address the Covid-19 crisis in promoting economic recovery.

“In light of the continued strength of the Malaysian economy, the MPC also recognizes the need to ensure that the stance of monetary policy is appropriate to prevent the risk of future financial imbalances,” it said.

BNM said that the monetary policy stance is slightly accommodative at the current level and remained supportive of the economy.

“The MPC will continue to ensure that the monetary policy stance remains consistent with the outlook of domestic inflation and growth,” it added.