Statement by the Bank Negara Malaysia:
While the global economy continues to expand at a moderate pace, there has been increasing divergence in the growth momentum among the major economies. For most of Asia, growth is supported by the continued expansion in both domestic and external demand. Looking ahead, despite the varying impacts of the significantly lower oil prices on economies, the overall global economy is expected to benefit from this development. Nevertheless, the downside risk to the global economic outlook has increased following the weakening growth momentum in a number of major economies due to external and domestic specific factors.
Volatility in the international financial markets has increased amid shifts in global liquidity and heightened uncertainty particularly with regard to global growth prospects and the decline in commodity prices. While the Malaysian financial markets have been affected by these global developments, there has been no disruption to financial intermediation. There remains ample liquidity in the domestic financial system with continued orderly functioning of the financial markets. The banking institutions are operating with strong capital and liquidity buffers, and continue to provide financing to the economy.
For Malaysia, economic activity continues to be supported by growth in domestic demand amid a moderation in exports in the fourth quarter of 2014. Going forward, domestic demand will remain as the key driver of growth. While private consumption is expected to moderate, it will remain supported by the steady rise in income and employment, and the additional disposable income from the lower oil prices. Investment activity is projected to remain resilient, with broad-based capital spending by both the private and public sectors cushioning the lower oil and gas-related investment activity. While export growth will be affected by lower commodity prices, the performance of manufactured exports is expected to improve. The prospects are therefore for the Malaysian economy to still remain on a steady growth path.
Inflation for 2015 is expected to be lower than earlier anticipated due to the lower energy and commodity prices. The projected lower energy prices will partially offset other domestic cost factors. With the implementation of the managed float pricing mechanism for fuel, the outlook for headline inflation would be subjected to the volatility of oil prices. Nevertheless, the expectation is for underlying inflation to remain relatively stable, amid the more moderate demand conditions.
At the current level, the stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions. The MPC will continue to carefully assess the external developments and their implications on the Malaysian economy. The MPC will also continue to monitor the risks of destabilising financial imbalances. This is to ensure that the monetary policy stance is consistent with the sustainability of the growth prospects of the Malaysian economy.