SET against an economic-ravaging health crisis of magnanimous proportion and sweeping political storm, economists are expecting Bank Negara Malaysia (BNM) to keep the all-time low overnight policy rate (OPR) of 1.75% for the remainder of the year.
For now, the consensus is such that the cumulative 125 basis points (bps) cuts since last year as well as the various fiscal stimulus measures that have been put in place shall provide support to the economy.
While BNM has rooms to cut, any reduction of the OPR will depend on the length of the lockdown because a further extension to the current lockdown will adversely affect the strength of Malaysia’s economic growth, according to MIDF Research.
“At the moment, we view the improvement in the public health has been uneven; while several states have been placed into the second phase of the National Recovery Plan, EMCO (enhanced movement control order) has been put in place to contain the high infections in Selangor and Kuala Lumpur,” observed the research house in an economic review.
“Going forward, with additional fiscal support, the progress in vaccination and eventually the relaxation of restrictions on the economy, we expect activities will pick up later this year.”
To re-cap, BNM’s Monetary Policy Committee decided yesterday (July 8) to maintain the OPR at 1.75%, deeming the stance to be appropriate and accommodative to cushion the economic impact on businesses and households and provide support to economic activity.
“Based on this expectation, including the anticipation for a more moderate inflation in the coming months, we see less need for BNM to cut the OPR,” projected MIDF Research. “We expect BNM to keep OPR at 1.75% throughout this year.”
Maybank IB Research chief economist Suhaimi Ilias also reiterated a “no OPR change” call for the rest of 2021 and well into next year. “Expect 25bps OPR hike only in 4Q 2022,” he projected.
He opined that BNM has been actively relying on other policy tools since last year for more direct intervention and immediate effect in addressing the economic impact of the COVID-19 pandemic.
“As part of the latest RM150 bil economic stimulus package (PEMULIH on June 28), the six-month loan moratorium is back (estimated at RM80 bil) and BNM raised its microcredit and SME funding schemes by another RM2 bil to a total of RM27.1 bil, of which RM18.5 bil has been disbursed since last year until June 2021,” he added.
The next Monetary Policy Committee (MPC) meeting is scheduled on Sept 9 with the sixth and final meeting slated for Nov 3. – July 9, 2021
