KUALA LUMPUR: Malaysia’s gross domestic growth (GDP) is expected to be between -2.0 per cent and 0.5 per cent this year, due to “necessary” global and domestic actions to contain the Covid-19 pandemic, Bank Negara Malaysia said in its inaugural Economic and Monetary Review 2019.
The central bank said the implementation and subsequent extension of the Movement Control Order (MCO) would dampen economic activity following the suspension of operations by non-essential service providers and lower operating capacity of manufacturing firms.
“Of significance, tourism-related sectors are expected to be affected by broad-based travel restrictions and travel risk aversion, while production disruptions in the global supply chain will weigh on the manufacturing sector and exports,” it said.
Bank Negara said the Malaysian economy expanded 4.3 per cent in 2019, supported by resilient private sector spending.
Headline Consumer Price Index (CPI) inflation was lower a
t 0.7 per cent (2018: 1.0 per cent), while underlying inflation remained relatively stable at 1.5 per cent (2018: 1.6 per cent).
The central bank said headline inflation was expected to average within the range of -1.5 per cent to 0.5 per cent in 2020 (2019: 0.7 per cent), mainly reflecting significantly lower global oil and commodity prices.
Without the direct downward impact from lower global oil prices, underlying inflation, as measured by core inflation, is projected to remain positive, averaging between 0.8 per cent and 1.3 per cent.
“This reflects subdued demand pressures, expectations for a negative output gap this year, as well as weak labour market conditions,” it said.
Bank Negara said monetary policy in 2020 would focus on providing support to domestic economic growth in an environment of subdued price pressure.
It said Overnight Policy Rate was reduced un January and March 2020 by a total of 50 basis points (bps) to 2.50 per cent to provide a more accommodative monetary environment to support economic growth amid price stability.
The Statutory Reserve Requirement ratio for banks was also reduced further by 100 bps in March.
This, along with the granting of flexibility to Principal Dealers to recognise Malaysian Government Securities (MGS) and Malaysian Government Investment Issue (MGII) for SRR compliance, releaed an additional liquidity of RM30 billion into the banking system.