Malaysia does not expect a recession in 2023 – BNM Governor

INFLATION is expected to remain high but Malaysia does not expect a recession in 2023, in line with better economic growth.

The Governor of Bank Negara Malaysia (BNM), Tan Sri Nor Shamsiah Mohd Yunus said, Malaysia has started to see signs of inflation driven by demand in a high deposit environment.

Therefore, he said, the central bank aims to avoid a situation where the basic value of prices has been significantly influenced as is the case in more developed countries.

“In 2023, we will see challenges to growth, especially from the external aspect with sluggish global growth but I want to emphasize once again that we do not expect a recession,” he said.

He also said that high inflation affects the purchasing power and savings of the people, therefore BNM manages the risk first by gradually adjusting the policy rate but moderate policy movements are expected to take time to be fully transferred to the economy.

“We cannot wait until inflation gets too high before we take action. If it does, the Overnight Policy Rate (OPR) needs to be raised, faster and more.

“This will have an impact on households and businesses. We carry out various policies based on which we achieve price stability and sustainable growth,” said Nor Shamsiah.

He said, the economy is projected to grow by 4.0 percent to 5.0 percent in 2023 and continue to surpass the level before the pandemic.

Nor Shamsiah said overall inflation and core inflation are expected to remain high due to demand and cost pressures as well as any changes to domestic policy measures.

“Overall inflation is expected to be between 2.8 percent and 3.3 percent in 2023.

“The balance of risks in relation to the inflation outlook in 2023 tends towards higher inflation and continues to depend on domestic policy measures regarding subsidies as well as developments in global commodity prices resulting mainly from the ongoing military conflict in Ukraine and protracted supply-related disruptions,” he said.

He said overall inflation this year may have reached its highest level of 4.5 percent in the third quarter of this year compared to 2.8 percent in the second quarter of 2022 while core inflation continued to rise to 3.7 percent compared to 2.5 percent in the second quarter of 2022.

Nor Shamsiah said the increase in overall inflation was largely driven by the base effect of the electricity bill discount implemented in the third quarter of 2021 as well as the continued increase in core inflation and volatile goods.

He said inflationary pressure reflects a combination of increased cost pressure, especially for food-related goods, as well as strong demand conditions.

“Overall inflation is expected to reach its highest level in the third quarter of 2022 and is expected to moderate thereafter, but remain high due to easing base effects and expected declines in global commodity prices.

“Core inflation is expected to average close to the projected range of 2.0 percent to 3.0 percent in 2022, based on demand-driven price pressures in a high cost environment,” he said. – Bernama

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