In a statement, the central bank said at the current OPR level, the monetary policy stance is “slightly accommodative and remains supportive of the economy”.
BNM said that following a strong outturn in the first quarter of the year, the economy expanded at a more moderate pace in recent months as exports were weighed down by slower external demand, as expected.
Growth for the remainder of the year will continue to be driven by resilient domestic demand.
“While the growth outlook is subject to some downside risks stemming from weaker-than expected global growth, upside risks mainly emanate from domestic factors such as stronger-than-expected tourism activity and faster implementation of projects,” it said.
BNM said headline inflation has continued to ease amid lower cost factors. While core inflation has also moderated, it remains elevated relative to the long-term average amid lingering demand and cost factors.
For the second half of 2023, both headline and core inflation are projected to trend lower, broadly within expectations.
“Risks to the inflation outlook remain highly subject to the degree of persistence in core inflation, changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments,” it said.
BNM said household spending continues to be underpinned by favourable labour market conditions, particularly in the domestic-oriented sectors. Tourist arrivals have been steadily improving, and are expected to continue rising, thereby lifting tourism-related activities.
It said the MPC continues to see limited risks of future financial imbalances.
“The MPC remains vigilant to ongoing developments, and will continue to monitor incoming data to inform the assessment on the outlook of domestic inflation and growth.
“The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” it said.
The central bank surprised most observers on May 3 when it decided to raise the OPR by 25 basis points (bps) from 2.75% to 3%, after hitting the pause button at the MPC’s meetings in January and March. This brought the OPR to its pre-pandemic level of 3%.
Before that, BNM had raised the OPR by a total of 100bps between May and November last year.
The MPC meeting was the first chaired by new BNM governor Shaik Abdul Rasheed Abdul Ghaffour, who took office on July 1 from his predecessor, Nor Shamsiah Yunus.
The move to raise the OPR by 25bps in May was to rein in inflation, said then governor Nor Shamsiah, who also acknowledged the higher OPR had hit some Malaysians hard.
The MPC’s decision comes at a time when the ringgit has been under severe strain, garnering the unwanted reputation of being Asia’s second worse performing currency year-to-date after the yen.
With the ringgit underperforming, and foreign investors dumping Malaysian equities, one of the options open to BNM was to raise the OPR to prop up the local currency, and the equity markets.
A recent poll by Reuters showed an overwhelming majority of 25 economists surveyed predicted BNM would hold the OPR steady. Only three respondents predicted that the OPR would rise by 25bps to 3.25%.