By Ranjit Singh
BANK Negara Malaysia’s (BNM) cut in the overnight policy rate (OPR) by 25 basis points to 2.5% was a widely anticipated move as this would help spur growth.
This marked the second OPR cut by BNM within a span of less than two months. The central bank reduced the OPR rate by 25 basis points to 2.75% on Jan 22, which was the lowest point since March 2011.
Bank Islam Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told FocusM that the interest rate cut was within the bank’s expectations.
“It is within our expectation and it should be positive for the economy as the monetary condition is very supportive to growth by way of cheaper borrowing costs. We believe there is always a possibility for additional OPR cuts in the horizon. However, this will be contingent upon the evolving economic outlook. As we know, Covid-19 presents a shock to the global value chain. Therefore, additional monetary easing could help the economy to withstand the impact,” he said.
Malaysia Rating Corp Bhd chief economist Nor Zahidi Alias told FocusM that growth in the first half of the year would have been affected by the Covid-19 outbreak, which has claimed more than 3,000 lives globally.
“Yes, growth in the first half of 2020 will be affected by the Covid-19 outbreak. Our estimates show that Malaysia’s GDP growth could moderate by roughly 0.3 percentage point if world economic growth falls from 3.3% to 3% (as estimated by the International Monetary Fund). If the Covid-19 outbreak is prolonged and becomes pandemic, the impact on the Malaysian economy could become more pronounced,” he said.
Among the sectors that would be severely hit will be the tourism sector, for example, given the jump in the number of tourist arrivals from China in recent years.
“Notwithstanding this, the RM20 bil stimulus package will provide some support to affected industries, including tourism and medical, while instituting measures to stimulate consumer spending,” added Nor Zahidi.
The central bank’s move in supporting private consumption is critical especially when investments will likely remain sluggish following global and domestic economic uncertainties. Investments in oil and gas industries are also affected by the downward pressure in crude oil prices and supply disruptions in East Malaysia.
“In 2019, private consumption was the main pillar of growth, contributing about 100% of headline growth. As such, the reduction in the OPR would, to some extent, help the economy go through this challenging period,” said Nor Zahidi.
Malaysia recorded a GDP growth of 3.6% in 4Q19, which was its lowest growth in a decade due to weak commodity prices and a slowing global economy. For the full year 2019, GDP growth was at 4.3%.
The economy is expected to register slower growth this year due to a slew of factors including the Covid-19 outbreak, lethargic global economy and weak commodity prices. A slowing economy translates into tepid growth for a trading and export-dependent nation such as Malaysia. The government has projected a GDP growth of 4% for 2020 but it would be really dependent on the severity of the virus outbreak and its concomitant effects to the economy.
The FBM KLCI closed at 1,478.6 points today, up 11.7 points or 0.8% in comparison with yesterday’s close, while the ringgit was traded flat at RM4.21 against the US dollar. – March 3, 2020
