KUALA LUMPUR:The country’s monetary and financial position remained resilient throughout the onslaught of the COVID-19 pandemic and supportive of economic recovery, said the Ministry of Finance (MoF).

The accommodative monetary policy cushioned the adverse economic effects of the COVID-19 containment measures and provided additional stimulus to sustain the pace of economic recovery, the ministry said in its Economic Outlook 2021 report released today.

The MoF expects the monetary operation to be supported by the vibrant money and foreign exchange markets, as well as intermediation activities.

On monetary developments, it said Bank Negara Malaysia has cumulatively reduced the overnight policy rate (OPR) by 125 basis points (bps) during the first seven months of 2020 to a historic low of 1.75 per cent.

The interest rate in the banking system was also lowered in line with the OPR adjustment.

MoF expects the banking sector to remain robust and orderly, underpinned by ample liquidity and strong capital buffers.

“The capital market will continue be resilient, driven by well-developed infrastructure and instruments.

“Nevertheless, concerns over the momentum of global economic recovery due to the pandemic, continued United States-China trade tensions, weak commodity prices and volatile global financial markets may affect financial and capital market performance,” it said.

Between January and July 2020, domestic banks remained strong in spite of the challenging environment, supported by the orderly financial markets and sustained confidence in the banking sector.

During the period, lending activities had slowed down, reflecting the cautious sentiment on the global and domestic growth outlook, with loan approvals and disbursements falling by 22 per cent and 7.3 per cent to RM185.5 billion and RM657.1 billion, respectively.

Loan approvals to businesses decreased by 12.5 per cent to RM80.7 billion as at end-July 2020, while loan approvals to households declined by 30 per cent to RM88.9 billion.

The overall household debt increased by 4.0 per cent to RM1.27 trillion, accounting for 87.5 per cent of gross domestic product (GDP) as at end-June 2020.

MoF said the increase was mainly due to the sharp contraction in GDP during the first half of 2020, with the bulk of the debt comprising loans for the purchase of residential properties (55.9 per cent).

-- BERNAMA