KUALA LUMPUR: There is still more room for monetary policy space to provide further support if needed, Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said.
Nor Shamsiah, however, said monetary policy was most effective when it complemented other measures undertaken by the central bank targeting to the needs of specific economic sectors and groups.
She added that this also applied to fiscal measures undertaken by the government to facilitate a more sustainable economic recovery.
On May 6, Bank Negara kept its overnight policy rate (OPR) unchanged at 1.75 per cent, in line with economists' expectation.
After its Monetary Policy Committee (MPC) meeting on Thursday, the central bank said the latest indicators had pointed to continued improvements in economic activity in the first quarter and into April.
The last OPR cut f 25 basis points from two per cent was made last July.
Since the pandemic, Bank Negara had made four OPR cuts, lowering the rate from three per cent to 1.75 per cent.
Nor Shamsiah said headline inflation was expected to average higher between 2.5 per cent and 4.0 per cent in 2021, primarily due to the cost-push factor of higher global oil prices.
In terms of trajectory, headline inflation was projected to temporarily spike in the second quarter of 2021, driven by the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020. she said at a virtual briefing on Malaysia's gross domestic product in the first quarter (Q1) of 2021 here today.
Nor Shamsiah said the headline inflation in April and May might rise to between 6.5 per cent and 7.0 per cent.
"However, this will be transitory as headline inflation is expected to return to below 5.0 per cent in June, and continue to moderate thereafter as the base effect dissipates.
"Underlying inflation, as measured by core inflation, is expected to remain subdued, averaging between 0.5 per cent and 1.5 per cent for the year, amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments," she added.
Meanwhile, Nor Shamsiah said the ringgit had depreciated by 3.5 per cent against the US dollar in Q1.
She said this was due mainly to the strengthening of the US dollar, which also resulted in a broad-based weakening of other advanced and emerging market currencies.
"This was amid the rebalancing of portfolio investments by global investors following the rise in US Treasury yields, driven by anticipation of a stronger US economic recovery and higher inflation expectations," she said.
She said since April 1, the ringgit had appreciated by 1.0 per cent against the US dollar as at May 7.
"This appreciation was in line with US dollar strength subsiding as US Treasury yields have started to trend lower from its peak in March. The increase in global oil prices in early April also provided some support to overall investor sentiments.
"Going forward, as uncertainties remain on the momentum of the global and domestic economic recovery, the ringgit is expected to remain exposed to periods of heightened volatility," she added.