Current monetary policy stance remains accommodative, says BNM Governor

BNM Governor Tan Sri Nor Shamsiah Mohd Yunus said the central bank recognised that the unprecedented conditions that warranted significant monetary support during the height of the COVID-19 pandemic were almost over.

With the overnight policy rate (OPR) at a historical low of 1.75 per cent, the central bank was mindful of the consequences of keeping it low for an extended time, which could lead to an unhealthy buildup in financial imbalances.

"Nevertheless, we are closely monitoring for signs and potential effects as to whether the price pressures could become entrenched and reinforced by domestic demand factors.

"We would balance all these considerations and will ensure that any potential adjustments to the OPR may also mean that we are confident that we are on a firmer growth trajectory," she told a virtual media briefing today, in conjunction with the publication of BNM's Annual Report 2021.

Nor Shamsiah said the performance of the ringgit was relatively stable, in line with improvements in regional currencies.

On inflation, the central bank expects headline inflation to be around 2.2 per cent to 3.2 per cent in 2022, but the inflation outlook would depend on the global commodity markets and supply related disruptions.

"Our ringgit will be market-determined. The consumer standpoint to the direct impact of rising oil prices on fuel inflation is expected to be muted as we are assuming the price ceiling of retail fuel prices will remain in place throughout the year," said Nor Shamsiah.

Meanwhile, she said banks have increased their vigilance over credit risk developments, particularly for large borrowers and those in vulnerable sectors.

As a result, banks have been proactive in identifying problematic assets early and making adequate provisions against potential credit losses.

"Therefore, the banking system has built up strong buffers and enabled them to absorb significant losses including from large borrowers. Currently, provisions against losses in the banking system are around a historical high of 143 per cent.

"This is why we do stress tests that we conduct regularly for the banking system," the governor noted.