Malaysia central bank sees economy rebounding in 2021 though pandemic risks remain

KUALA LUMPUR: Malaysia's central bank on Wednesday said it expects the economy to rebound in 2021, boosted by improving external demand and a pick-up in investment and production, though downside risks remain due to the ongoing COVID-19 pandemic.

Bank Negara Malaysia (BNM) forecast economic growth in a range of 6% to 7.5%, with a return to pre-pandemic levels by mid-2021, Governor Nor Shamsiah Mohamad Yunus said. The bank had earlier forecast a range of 6.5% to 7.5%.

"The main risk to the domestic economy are the developments surrounding the COVID-19 pandemic," Nor Shamsiah told a virtual news conference following the release of BNM's annual report.

"This includes potential further containment measures should there be disruptions in the vaccine rollout globally or domestically, and COVID-19 cases reescalate."

Malaysia launched its national COVID-19 vaccination programme last month, aiming to inoculate at least 80% of its 32 million people by February next year.

Southeast Asia's third-largest economy shrunk 5.6% in 2020, its most acute contraction since the 1998 Asian Financial Crisis.

Nor Shamsiah said monetary policy will remain accommodative to support economic recovery while ensuring price pressure is manageable.

She said the bank expects average headline inflation to be in a range of 2.5% to 4%, rebounding from 1.2% deflation last year.

BNM on Wednesday also announced further liberalisation of foreign exchange policy to strengthen Malaysia's position as a foreign direct investment destination and supply chain hub.

Measures, effective April 15, will include the removal of its so-called export conversion rule and allowing resident exporters to settle domestic trade in foreign currency with other residents involved in the global supply chain.

Nor Shamsiah said flexible ringgit exchange rate adjustment will continue to play a key role in ensuring resilience against external shock.

"The bank stands ready to manage any excessive volatility, through two way foreign exchange interventions," she said.