Analysts held differing views on how Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) would decide on the overnight policy rate (OPR) on Wednesday (20 January).
Dr Afzanizam Mohd Rashid, Chief Economist at Bank Islam Malaysia Bhd, expects the central bank to slash the OPR by 25 basis points in the year’s first meeting.
“We have seen that the number of new (COVID-19) infections has yet to subside, leading to the reintroduction of Movement Control Order (MCO) in key states for two weeks. This would result in output loss as human mobility is highly restrictive,” he said in a Bernama report.
“What it means is that the present gross domestic product (GDP) forecast of 6.5% to 7.5% for 2021 looks pretty much unattainable.”
He believes the situation warrants more policy support, such as a reduction in the OPR.
Currently, the OPR stands at 1.75% after BNM slashed a total of 125 basis points between January and July 2020.
Mohd Afzanizam is not ruling out further OPR cuts given the fluidity of the current situation.
“All eyes will be on the MCO and how long the measures would last and how soon the country would execute the vaccination programme that ultimately will determine the pace of the reopening of the economy,” he said.
In concurring, OCBC Bank also expects BNM to cut the OPR to 1.5% from 1.75%.
Stephen Innes, Chief Global Market Strategist at Axi, however, expects the central bank to hold back from slashing rates now and signal a rate cut later in the year to better coordinate the reopening of the economy with the COVID-19 vaccines’ availability.
“There seems to be a building consensus for a rate cut due to the MCO’s reimposition as it will harm the economy. I think policy inputs, like interest rate cuts, are less effective during lockdown…but either way, I’m splitting hairs as a rate cut at any time will provide economic relief,” he told Bernama.
With recent mobility restrictions on 85% of Malaysia’s economy, Innes expects the toll in first quarter GDP to be significant, with the OPR cut remaining a possibility.
“I was factoring in a rate cut later this year but if BNM makes a pre-emptive strike, I think it would be the one and done variety and not signal an easing policy, so the currency market will not react negatively,” he said.
Standard Chartered recently said it expects the central bank to maintain the OPR this year, following a 125-basis-points cut last year since BNM seemed comfortable in keeping its current stance.
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