BNM Continues To Monitor Domestic Inflation, Growth Outlook For Sustainable Growth

KUALA LUMPUR, Jan 21 (Bernama) -- Bank Negara Malaysia (BNM) continues to closely monitor the balance of risks related to domestic inflation and the growth outlook to ensure that Malaysia’s monetary policy stance remains conducive to sustainable growth amid price stability. 

Governor Datuk Seri Abdul Rasheed Ghaffour stressed that the approach to monetary policy remains data-driven and forward-looking.

“To better navigate these challenges and uncertainties, particularly on monetary policy, we continue to explore frontier methods and go beyond conventional approach.

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“We leverage our regional offices to conduct on-the-ground surveillance and actively engage with relevant industries,” he said in his keynote address at the preliminary launch of the Tun Ismail Ali Centre of Excellence (TIA CoE) yesterday.

Additionally, he noted that BNM uses high-frequency data to assess the state of the economy and spends a lot of time filtering out the noise from such data.

He emphasised that while monetary policy has always involved a degree of uncertainty, recent macroeconomic trends -- including the ongoing technological breakthroughs coming from machine learning and artificial intelligence, as well as shifting geopolitical dynamics -- have amplified this uncertainty.

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“This compels us to reassess our approach to monetary policy and increase the focus on risk assessments, to ensure they are prioritised to support informed and effective decision-making

“In facing these uncertainties, Malaysia is no different from the rest of the world,” he added. 

Monetary Policy in a Post-Globalisation Environment

The governor opined that conventional thinking on monetary policy in the new economic environment, characterised by increased risks and fragmentation, will no longer be sufficient.

He noted in this new economic reality, policymakers are confronted with whether inflation dynamics are shifting structurally. Such shifts could change the traditional Phillips curve relationships, thus complicating the trade-offs between controlling inflation and supporting growth.

(The Phillips curve states that inflation and unemployment have an inverse relationship; higher inflation is associated with lower unemployment and vice versa. The concept was used to guide macroeconomic policy in the 20th Century but was called into question by stagflation in the 1970s.)

Abdul Rasheed also highlighted that the quality and timeliness of economic data contributed to the more complex environment, which may have been challenged amid the ongoing heightened global uncertainties.

“While established macroeconomic assumptions continue to underpin baseline scenarios, their relevance in the current environment is increasingly uncertain.

“This evolving context presents challenges in forecasting and, consequently, in formulating monetary policy decisions, underscoring the need for greater adaptability and innovation in central banking.”  

Meanwhile, he pointed out that one of the most intricate challenges policymakers face is the interplay between monetary and financial stability.

“There remains a vast, unexplored area involving the potential trade-offs and linkages between monetary and financial stability,” he said.

Another area vital for monetary and financial stability is the growing importance of coordination between monetary and fiscal policies. 

“Establishing robust institutional frameworks that align these policies (monetary and fiscal policies) plays a significant role in facilitating coordination between the two while maintaining their independence.

“This would effectively manage the potential trade-offs mentioned earlier,” he said. 

The TIA CoE, previously known as the Tun Ismail Ali Chair, has thrived under the auspices of Universiti Malaya over the past 20 years.

Since its establishment in 2000, the success of the Tun Ismail Ali Chair in fostering innovative research and academic contributions is a testament to Tun Ismail Ali’s legacy. 

Tun Ismail Ali was the second BNM Governor and a pioneer in the field of central banking in Malaysia. 

-- BERNAMA