SO after all the debate between “cut” or “no cut”, Bank Negara Malaysia (BNM) has decided to leave the interest benchmark unchanged at 1.75% during its first Monetary Policy Committee (MPC) meeting of 2021 yesterday (Jan 20).
Reading in between the lines of the central bank’s monetary policy statement, CGS-CIMB Research foresees the OPR to be slashed by 25 basis points (bps) in 1H 2021 – at either the March or May MPC meeting – to 1.50%.
“In our view, the economy may have to continue operating under MCO 2.0 (movement control order) restrictions for a protracted period, reinforced by comments from the Ministry of Health director-general Tan Sri Dr Noor Hisham Abdullah that the daily COVID-19 infection rates could reach 8,000 by the third week of March,” justified economists Michelle Chia and Lim Yee Ping.
“Should the growth outlook continue to falter, BNM may be pressed into easing monetary policy again.”
In a related development, CGS-CIMB Research estimated that a 25bp cut in OPR would lower its projected FY 2021F net profit for banks by about 2.2% (on a full-year basis) from 19% currently to 17.2% (assuming an OPR cut in March).
“Our economist’s change in view to now expecting a 25bp OPR cut in 2021F (from no cut previously) is negative for banks,” noted banking analyst Winson Ng. “However, this is much narrower than the 125bps cut in 2020, signifying a better net interest margin (NIM) outlook in 2021.”
UOB Malaysia senior economist Julia Goh pointed to BNM’s line in BNM’s monetary policy statement which stated “given uncertainties surrounding the pandemic, future stance will depend on new data and information”.
“In other words, we think BNM is in a “wait-and-see” mode,” she opined. “Given the possibility of further extension of the current containment measures and potential downside risks, we maintain our view for a 25bps OPR cut to 1.50% in 1Q 2021.”
However, MIDF Research expects no further easing needed for now given the cumulative 125bps cuts last year will continue to provide support to the economy.
“A more targeted approach will be required to assist those who have been impacted by the introduction of MCO 2.0,” reckoned the research house.
“The recently announced PERMAI (the Malaysian Economic and Rakyat Protection Assistance Package) fiscal stimulus package will have a more immediate impact on the economy as monetary policy changes will typically take several months to affect the economy.”
In fact, moving forward, MIDF Research expects BNM to begin raising OPR to a more normal level as early as in the final quarter of this year in anticipation of the vaccine administration boosting sentiment and support for the economy to rebound. – Jan 21, 2021
