Following today’s Monetary Policy Committee (MPC) meeting, Bank Negara Malaysia (BNM) has decided to maintain the overnight interest rate (OPR) at 3%. The 3% OPR has been the same since May 2023, when it was increased by 25 basis points from 2.75%.
Auto loans are affected by the OPR because if banks have higher borrowing costs, they will pass them on to the consumer at higher interest rates, making hire purchase loans more expensive and potentially more difficult to get approved. Therefore, any increase in OPR will impact car sales. So since there is no rate hike, this should be good news for the MAA.
According to BNM, the OPR level is in line with the health of the economy and continues to support growth while inflation remains under control. The BNM MPC meets every two months to make OPR decisions.
The next meeting will take place in July 2024.
Here is the full statement from BNM:
Monetary policy statement May 2024
At its meeting today, Bank Negara Malaysia’s Monetary Policy Committee (MPC) decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.
The global economy continues to grow, amid robust labor markets in some countries and a continued recovery in global trade. Looking ahead, global growth is expected to be sustained as headwinds from tight monetary policy and reduced fiscal support are offset by positive labor market conditions and weaker inflation. Global trade is expected to continue to strengthen as the global tech recovery gains momentum. While global headline and core inflation continued to fall slightly in recent months, the pace of disinflation has slowed in some advanced economies. This increases the prospect that interest rates will remain high for longer, particularly in the USA. The growth outlook remains subject to downside risks, particularly due to further escalation in geopolitical tensions, higher-than-expected inflation and volatility in global financial markets.
For the Malaysian economy, the latest indicators point to higher economic activity in the first quarter of 2024, driven by robust domestic spending and a positive turnaround in exports. The recovery in exports is expected to gain momentum going forward, supported by the global technology recovery and continued strength in non-electric and electronic goods. The number of tourist arrivals and spending is also expected to continue to rise. Sustained employment and wage growth continues to support household spending. Investment activity would be supported by the ongoing progress of multi-year projects in both the private and public sectors, the implementation of catalytic initiatives within the framework of the national master plans, as well as the higher realization of approved investments. The growth outlook is subject to downside risks due to weaker-than-expected external demand and larger declines in commodity production. Meanwhile, upside risks to growth mainly arise from greater spillover effects from technology expansion, more robust tourism activity and faster implementation of existing and new projects.
Headline and core inflation averaged 1.7% and 1.8%, respectively, in the first quarter of 2024. Looking forward, inflation is expected to remain moderate in 2024, broadly reflecting stable demand conditions and subdued cost pressures. The outlook for the rest of the year depends on the implementation of domestic subsidy and price control policies as well as global commodity prices and developments in financial markets. After taking into account the potential impact of subsidy rationalization, headline and core inflation are expected to average between 2.0% and 3.5% and 2.0% and 3.0%, respectively.
The ringgit does not currently reflect Malaysia’s economic fundamentals and growth prospects. External factors, particularly changing expectations about the monetary policy stance of major economies and ongoing geopolitical tensions, have led to increased volatility in both capital flows and exchange rates across the region, including the ringgit. The government and Bank Negara Malaysia (BNM)’s coordinated initiatives with the Government-Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs) and corporate engagements have continued to gain traction and cushion the pressure on the ringgit. BNM will continue to manage risks arising from increased financial market volatility. In the medium term, domestic structural reforms will provide more sustainable support for the ringgit.
At the current OPR level, the monetary policy stance continues to support the economy and is in line with the current assessment of the inflation and growth outlook. The MPC continues to closely monitor ongoing developments to assess the outlook for domestic inflation and growth. The MPC will ensure that the monetary policy stance continues to be conducive to sustainable economic growth while maintaining price stability.
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