Bank Negara Malaysia has unexpectedly decided to maintain its Overnight Policy Rate (OPR) at 2.75 per cent.
The central bank said the decision allowed its Monetary Policy Committee (MPC) to assess the impact of the cumulative past OPR adjustments, given the lag effects of monetary policy on the economy.
Most analysts had expected Bank Negara to raise the OPR by at least 25 basis points (bps) at the MPC meeting today before raising it by another 25bps in March.
Bank Negara, in its statement, said at the current OPR level, the stance of monetary policy remained accommodative and supportive of economic growth.
"Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook.
"The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth," it added.
According to Bank Negara, the global economy continued to be weighed down by elevated cost pressures, higher interest rates and Covid-19-related disruptions in China.
These factors more than offset the support from positive labour market conditions, and the full reopening of economies and international borders.
"Headline inflation moderated slightly from high levels in recent months. However, core inflation remains above historical averages.
"Central banks are expected to continue raising interest rates, albeit at a slower pace, to manage inflationary pressures.
"This will continue to pose headwinds to the global growth outlook," it said.
On the other hand, Bank Negara said growth in China was expected to improve once the current Covid-19 wave subsides.
The growth outlook remains subject to downside risks, including an escalation of geopolitical tensions, weaker-than-expected growth outturns in major economies, and a sharp tightening in financial market conditions.
For Malaysia, the central bank said, the latest data indicated continued economic expansion in the final quarter of last year on account of resilient domestic demand.
As a result, growth for 2022 is expected to exceed the earlier projected range of 6.5 per cent to 7.0 per cent.
Coming off a strong performance in 2022, Bank Negara said growth in 2023 was expected to moderate amid a slower global economy.
Growth would remain supported by domestic demand, it said, adding that household spending would be underpinned by sustained improvements in employment and income prospects.
"Tourist arrivals have continued to rise, further lifting the tourism-related sectors. The realisation of multi-year infrastructure projects will support investment activity.
"Downside risks to the domestic economy continue to stem from weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and re-emergence of significant supply chain disruptions," it said.
Malaysia's headline inflation averaged 3.4 per cent for the January-November 2022 period.
As projected, Bank Negara said headline inflation peaked in the third quarter (Q3) 2022, while underlying inflation, as measured by core inflation, averaged at 2.9 per cent up to November 2022.
Over the course of 2023, it said headline and core inflation were expected to moderate but remain at elevated levels amid lingering demand and cost pressures.
"Existing price controls and fuel subsidies, and the remaining spare capacity in the economy, will continue to partly contain the extent of upward pressures to inflation.
"The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy on subsidies and price controls, as well as global commodity price developments," it added.