KUALA LUMPUR, Jan. 25 (Xinhua) -- The Malaysian Central Bank, as widely expected, on Thursday raised its Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent the first time in three years, joining more central banks in tightening the monetary policy.
The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00 percent and 3.50 percent respectively, Bank Negara Malaysia said in its statement.
"With the economy firmly on a steady growth path, the Monetary Policy Committee (MPC) decided to normalize the degree of monetary accommodation."
"At the same time, the MPC recognizes the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time," it said.
The central bank raised the OPR by 25 basis points to 3.25 percent in July 2014, but cut its OPR to 3 percent in July 2016.
"At the current level (3.25 percent) of the OPR, the stance of monetary policy remains accommodative. The MPC will continue to assess the balance of risks surrounding the outlook for domestic growth and inflation," said the bank.
The bank also expects Malaysia's headline inflation to be averagely lower this year after averaged at 3.7 percent in 2017, due to a smaller effect from global cost factors.
It also expects a stronger ringgit exchange rate compared to 2017 will mitigate import costs.
Although the global energy and commodity prices are expected to trend higher in this year, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain.
Thus, the banks believed the underlying inflation, as measured by core inflation, remains moderate.
The central bank also expects Malaysia's strong growth momentum to continue in 2018, sustained by the stronger global growth and positive spillovers from the external sector to the domestic economy.
Domestic demand will remain the key driver of growth, underpinned by favorable income and labor market conditions, it said.
The outlook for investment activity is also positive, driven by new and on-going infrastructure projects and capital spending by both export- and domestic-oriented firms, it said, adding the external sector will provide additional impetus to the economy.
"Overall, growth is expected to remain strong in 2018," it emphasized, adding that the latest indicators reaffirmed the strength in exports and domestic activity.
