KUALA LUMPUR: Global financial services leader J.P. Morgan (JPM) expects further monetary policy support for the domestic economy in the near term after Bank Negara Malaysia cut the overnight policy rate today.
“While the cabinet officials have yet to be announced following the appointment of (Tan Sri) Muhyiddin Yassin as Malaysia’s 8th prime minister over the weekend, there seems to be a clearer path that includes a more supportive fiscal policy.
“At this point, however, we maintain our expectations for further policy easing in the second quarter this year while noting that should fiscal policy step up materially, there would be less urgency for monetary accommodation by the central bank,” it said.
Looking ahead, JPM expects the economy to grow at a moderate 4.3%, mainly dragged by the virus outbreak which would slow down tourism-related and manufacturing sectors.
For 2020, it sees private and public sector activities being supportive of growth with household spending growing at a slower pace amid moderate employment and income growth.
Investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors.
JPM in its research note said the ongoing COVID-19 outbreak has disrupted production and travel activity within the region, leading to greater risk aversion and resulting in tighter financial conditions and a resurgence in financial market volatility.
“Downside risks to the global growth outlook have increased, particularly in the near term. However, a number of countries have implemented policy responses. With further anticipated policy measures, these actions are expected to mitigate the economic impact of COVID-19,” it added.
While noting that the RM20 bil COVID-19 economic stimulus package announced last week could provide some boost for the domestic economy, it feels that downside risks to growth, nevertheless, will continue to linger as it is expected to impact commodity-related sectors.
“Thus, today’s monetary policy action, which is in line with our expectation, serves to provide a more accommodative environment to support Malaysia’s growth recovery this year,” it added
Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid also believes there is always a possibility of additional OPR.
“However, this will be contingent upon the evolving economic outlook. As we know, the COVID-19 presents a shock to the global value chain. Therefore, additional monetary easing could help the economy to withstand the impact,” he said. – March 3, 2020, Bernama
