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Bank Negara Governor: OPR Cut Is Pre-Emptive

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KUALA LUMPUR: The decision to cut the overnight policy rate (OPR) is a pre-emptive action to ensure that the economy continues to remain on a steady growth path, said Bank Negara governor Datuk Muhammad Ibrahim.

“It’s not that we expected growth to be weaker in the second half. We anticipate it to be stronger and that growth for the whole year is expected to remain between 4% and 4.5%.

“Now, what we intend to do is to ensure this happens. Basically it is a pre-emptive move,” he told Bernama in his maiden media interview since his appointment as the central bank governor on May 1.

In a unexpected move on Wednesday, the central bank slashed the OPR by 25 basis points to 3% as was decided at its two-day Monetary Policy Committee (MPC) meeting.

The last rate cut was in 2009 and the last adjustment was made in July 2014.

On the rationale for the rate cut now, he said the window of opportunity had presented itself as among others, inflation had gone lower-than-expected.

Inflation is projected to be lower at 2%-3% in 2016 compared with an earlier projection of 2.5%-3.5% while remaining stable in 2017.

“The window of opportunity is there, we just took it in our stride and say, look let’s give a boost to the economy, create an enabling environment so financing will be healthy, economic activities can prosper and people are able to generate more wealth and income,” said the calm and jovial Muhammad.

Currently, there are no plans by the MPC to change the interest rates over the next few meetings, he said, stressing that the central bank would always look at the data objectively and see what was needed.

“So, to say that there will be a series of rates cut is not true, but it’s true we will keep an open mind everytime we sit (down for the meeting),” he added.

Muhammad said the central bank, given the dynamic environment, looked at many factors when deciding on the monetary policy including developments in other countries.

However, a decision on the monetary policy is ultimately based on domestic considerations and has always been forward looking,

“In any monetary policy (decided) around the globe, when we look at what level it should be, we always look a few quarters forward to see how the economy will develop.

“We project what the growth will be in the second half of 2016 and in 2017, and we take our position in deciding the interest rate,” explained the 56-year-old Muhammad.

Meanwhile, Malaysia recorded an economic growth of 4.2% in the first quarter of 2016 and the second quarter figure is expected to be released in August. – Bernama

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