BNM governor: Need to stay vigilant as core inflation remains elevated

BNM governor: Need to stay vigilant as core inflation remains elevated

KUALA LUMPUR,. Malaysia must stay vigilant on inflation given that core inflation is still elevated at a higher-than-usual level, according to Bank Negara Malaysia (BNM) governor Datuk Abdul Rasheed Ghaffour.

High inflation makes life difficult for the rakyat, especially the lower-income group, and can cause significant harm to the economy, he said.

“High inflation hurts our purchasing power – this means what you could buy with RM100 now would be much less in the not-so-distant future,” he told Bernama in his first exclusive interview with the media since becoming governor on July 1, 2023.

Abdul Rasheed explained that high inflation also eats into funds that have been put away in savings.

“In addition, uncontrolled price increases make it difficult for businesses to plan and invest. This damages our growth potential and prospects, and is something we want to avoid,” he said.

On Thursday, the central bank said both headline and core inflation are projected to trend lower for the second half of 2023.

However, BNM cautioned that while core inflation has moderated, it remains elevated relative to the long-term average amid lingering demand and cost factors.

During a press conference in May 2023 to announce Malaysia’s first-quarter performance, the central bank forecast that headline and core inflation would remain higher in 2023 than the pre-pandemic levels, averaging between 2.8 per cent and 3.8 per cent for the year as a whole.

Ringgit undervalued, affected by external developments

Abdul Rasheed said the recent ringgit depreciation does not do justice to Malaysia’s economic fundamentals.

He pointed out that the country’s economy has been remarkably resilient through the pandemic.

“The ringgit is undervalued and should appreciate to reflect Malaysia’s underlying economic fundamentals,” he said.

At 6 pm on Friday, the ringgit was quoted at 4.6655/6675 against the greenback, down from 4.6580/6630 at Thursday’s close.

According to Abdul Rasheed, the currency’s recent trading has been driven by external developments and sentiments, with the US dollar movements and China’s weaker economic performance continuing to weigh on the ringgit.

Furthermore, he said, the more gradual hikes in the Overnight Policy Rates (OPR) in Malaysia, compared to other major and regional peers, have made the country’s policy interest rate one of the lowest in the region.

The governor also said BNM is committed to ensuring orderly market conditions, and would intervene to prevent excessive ringgit volatility.

“We are a small and open economy and what goes on in the world does affect us. But over the decades, our economy has transformed to become more diversified in terms of economic structure and trade partners.

“This means we are not too dependent on any one export product or particular trade partner,” he said.

On Malaysia’s economic resilience, Abdul Rasheed noted its 5.6 per cent growth in the first quarter (1Q) of 2023 was one of the highest in the region and that the country continues to have current account surplus.

Malaysia’s current account balance in 1Q 2023 recorded a surplus of RM4.3 billion, or 1.0 per cent of gross domestic product.

“Down the road, the positive spillovers from China’s reopening and healthy domestic economic growth prospects will provide support to the ringgit,” he said.

Abdul Rasheed said the recent Monetary Policy Committee (MPC) decision to maintain the OPR at 3.0 per cent is consistent with BNM’s mandate to maintain price stability for sustainable economic growth in the country.

He said based on the data presented to the MPC, the economy is growing steadily and domestic demand remains resilient, which is particularly important given the slower external demand.

“Also, while prices are still increasing, it is happening at a slower pace. This reflects our past pre-emptive hikes of 125 basis points which is working into the economy and yielding the intended outcome.

“Domestic financial conditions also remain conducive to financial intermediation amid sustained credit growth,” he added. – Bernama

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