SUBDUED inflation as evident by the 1.4% year-on-year (yoy) decline of the Consumer Price Index (CPI) implies there remains sufficient headroom for monetary policy easing, according to CGS-CIMB Research.
Moreover, the research house is also wary that recent surges in COVID-19 cases and the re-implementation of Conditional Movement Control Order (CMCO 2.0) in Selangor, Putrajaya, Kuala Lumpur and Sabah will temper with domestic tourism again and put downward price pressure on the tourism-related sector.
“Hence, we see the possibility of a 25 basis points (bp) reduction in the overnight policy rate (OPR) by Bank Negara Malaysia on Nov 3 in reaction to the two-week CMCO 2.0 which we estimate to shave a further 0.18% off the 2020 gross domestic product (GDP),” wrote CGS-CIMB Research economists Michelle Chia and Lim Yee Ping.
However, MIDF Research expects the central bank to “pause from further easing for the rest of the year”.
“The cumulative cuts of 125 basis points in OPR earlier this year is sufficient to provide accommodative monetary policy support to Malaysia’s economy,” noted the research house.
MIDF Research maintained its 2020 inflation forecast at -1% given oil prices are anticipated to remain sluggish on mounting demand concerns, particularly over surging COVID-19 cases.
“In addition, the implementation of government’s electricity bill discounts until end of the year will cushion some impact of utilities charges on consumers, hence contributing to downward pressure to the CPI,” opined the research house.
Despite Malaysian consumers resuming their spending activities, MIDF Research expects the recovery for spending on non-essential items and the overall domestic expenditures will take time to fully recover.
“Consumers may hold back their spending plans on concerns over future personal finances and outlook for the job market,” added the research house. – Oct 21, 2020
