THE current low interest rate environment may even get lower when Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) meets next Wednesday (Jan 20).
The significant surge in COVID-19 is likely to push the central bank to slash the overnight policy rate (OPR) by a further 25 basis points (bps) to 1.50%, according to ING Research.
“A nearly five-fold jump in infections during the last two months to over 144,000 currently has forced the Government to tighten movement restrictions across the country while it also declared a state of emergency until Aug 1,” the research house pointed out in its latest review on Malaysia.
“This is poised to derail Malaysia’s economic recovery from a record slump in the last year – the five most affected states by the pandemic (Melaka, Johor, Penang, Selangor and Sabah) together make up half of Malaysia’s total GDP (gross domestic product).”
Unlike most other Asian central banks which have almost exhausted their rate policies, ING Research opined that BNM still has room to cut the policy rate further.
Moreover, persistently negative inflation – in November it fell 1.7% year-on-year (December data is due next week) – has left the country’s real interest rates as some of the highest in the region.
“This is detrimental for the recovery,” noted ING Research. “The earlier the BNM cuts, the better it will be to soften the blow to the economy from the worsening pandemic.”
The research house is not alone in its OPR outlook. Kenanga Research also foresees a higher probability for BNM to slash the OPR by 25 bps to 1.50%.
“In fact, we do not discount the possibility of an additional 25 bps cut to 1.25% if needed,” the research house pointed out when commenting on the re-imposition of movement control order (MCO 2.0) and the declaration of a state of emergency recently.
“Nevertheless, while this would help to ease the burden of existing borrowers, we doubt that it will help much in enticing new borrowers as rates are already at record-low.
“As such, we opine that greater emphasis on fiscal stimulus and incentives would be a better option in spurring demand in the real economy.”
For the record, CGS-CIMB Research estimated daily economic losses due to MCO 2.0 at RM750 mil, higher than the RM200 mil incurred during the conditional MCO (CMCO) although significantly less painful than the RM2.4 bil lost during the first MCO from March to May 2020.
“As such, we expect each fortnight of MCO implementation to reduce our full-year GDP growth forecast of 7.5% for 2021F by RM10 bil or 0.7% point,” added the research house. – Jan 15, 2021
