Bank Negara may slash rates again

AGAINST the backdrop of the latest conditional movement control order (CMCO) and a surge in daily COVID-19 infections, Bank Negara Malaysia (BNM) may decide to further trim its overnight rates (OPR) by another 25 basis points (bps) on Nov 3.

Standard Chartered Global Research said the move may be necessary as the Government has extended the CMCO due to a spike of COVID-19 cases.

“Google mobility data suggests the impact on activity is similar to that during the movement control order (MCO) between May and June (this year).

“In Sabah, activity seems to have slowed down to the levels seen during MCO from March to May (this year),” wrote its chief economist for Asean and South Asia Edward Lee in an economic alert.

Yesterday, Senior Minister (Security) Datuk Seri Ismail Sabri Yaakob announced the CMCO in Selangor, Kuala Lumpur and Putrajaya will be extended until Nov 9.

The CMCO was set to expire midnight yesterday before the Bera MP decided to extend it, saying health authorities have informed him that COVID-19 cases has risen.

In March, the central bank announced a six-month loan-repayment moratorium starting April 1 to help individuals and businesses affected by the pandemic.

GDP forecast needs to reviewed

Following the move, BNM has cut its overnight policy rate by 125 bps year-to-date to 1.75% to bolster fiscal measures aimed at protecting the economy.

Lee said Malaysia’s gross domestic product (GDP) forecast of between -3.5% and -5.5% may also need to be reviewed as the two-week CMCO beginning Oct 14 would have slashed about 0.4% from the bank’s previous estimate.

“The latest extension of the CMCO to Nov 9 may threaten the lower bound of the government’s 2020 GDP growth forecast of -3.5% to -5.5%,” he opined.

“This may provide an anchor for BNM’s decision on Nov 3.”

Lee added while further rates cut may not boost investment activity for now, the move is necessary to help lower financing costs and provide cash buffer for households during this tough times.

“For example, mortgages worth 41% of the GDP and a 25 bps cut may save indebted households by about 0.1% of GDP in financing costs per annum,” he added. – Oct 27, 2020

 

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