KUALA LUMPUR: The government may introduce additional monetary policy and fiscal stimulus soon to cushion the economy from any downside risks associated with the COVID-19 outbreak, according to analysts.
The possibility could not be discounted as the country’s economic outlook is also clouded by the slump in crude oil price amid the global financial market turmoil.
The government has already introduced some measures such as the 25 basis points (bps) reduction in the overnight policy rate (OPR) to 2.5% by Bank Negara Malaysia (BNM) on March 3, the lowering of fuel prices and the introduction of a RM20 bil economic stimulus package on Feb 27.
“There is the prospect of at least another 25bps-50bps cut in OPR,” Maybank IB Research said in a note today.
The investment bank also did not rule out the possibility of reductions in the current 3% Statutory Reserve Requirement (SRR) for banks as last week’s global financial market meltdown further tightened and deteriorated financial conditions.
It pointed out that while BNM’s next Monetary Policy Committee meeting is scheduled for May 4 and 5, there is the potential for an emergency unscheduled meeting.
“The SRR cut can be announced outside of the meeting as per the cut announced in November 2019,” it said.
As the new government is revisiting the economic stimulus package, Maybank IB Research believed several measures could be enhanced and broadened.
It said a number of the targeted and time-bound fiscal measures reliefs starting in March until September can be extended until year-end.
In terms of the role of government-linked companies, Petronas, which is sitting on RM73 bil net cash, could maintain its domestic capital expenditure (capex) plan to mitigate any impact on the domestic oil and gas industry.
Maybank IB Research also did not rule out the prospect of additional or special Petronas dividend to boost the government coffers to prevent an excessive increase in the country’s budget deficit as well as cutbacks in the government spending to fund additional fiscal stimulus.
Meanwhile, Wazan Capital director Izrul Zainal Abidin said the revised or supplementary budget should be carried out to cover the shortfall of the 2020 Budget as it used an oil price assumption of US$62 per barrel compared to around US$30 now.
In the meantime, he felt that the government should introduce a more effective tax structure to boost its revenue following the abolition of the Goods and Services Tax about two years ago.
He pointed out that the Sales and Service Tax has clearly failed to replace GST in terms of collection.
On the Parliament sitting beginning on May 18, Izrul stressed the importance of politicians to focus their debate on economic issues and find ways to boost economic activity and reduce unemployment.
“As the global economic environment becomes more volatile and as Malaysia becomes more exposed to movements in global commodity prices, the risks of such a shock are likely to rise.
“Let’s set aside all the political drama and it is now the duty of the rakyat and the new cabinet to work together to rebuild the nation and bring it to the highest level,” he stressed. – March 16, 2020, Bernama
