Economists believe Bank Negara Malaysia’s (BNM) decision to keep the Overnight Policy Rate (OPR) unchanged at 1.75% is a move to give the stimulus packages rolled out by the government time to make an impact on the economy.
Shan Saeed, an economist based in Kuala Lumpur, said the central bank is taking a back seat to make way for the government’s stimulus packages, about seven of which were announced since 2020, reported Bernama.
“I think if the central bank sees that the economy needs further support (aside from the stimulus packages), they might decrease (the OPR in the future),” he said.
He noted that economies across the globe have introduced fiscal and monetary policies during these challenging times.
“You need a fiscal policy to stimulate growth. You need the monetary policy to boost the business sentiments and domestic consumptions,” Shan told Bernama.
“One policy alone cannot do the magic. Every policy has got certain limitations. It can make an impact on the economy but beyond a certain level, it can’t make any impact.”
BNM slashed the OPR by a total of 125 basis points in 2020, a move which Shan expects to take at least 12 to 15 months for it to make an impact on the economy.
He explained that the government introduced various stimulus packages to keep the business sentiment strong as well as the domestic demand intact.
“In order to create or maintain that momentum of people consuming and buying domestically, they are giving all these fiscal stimulus packages,” he said.
Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Islam Malaysia Bhd, said the central bank’s Monetary Policy Committee continues to be guarded on how the resurgence of COVID-19 cases may play out in the near term.
“BNM has made it quite clear that inflation is not the immediate concern given that it is likely to be transitory, implying that the option to provide additional monetary accommodation is widely open,” he said as quoted by Bernama.
“However, we believe BNM may want to put the OPR on hold for as long as possible as it may want to conserve its policy space. We are inclined to put OPR at 1.75% throughout the year.”
Meanwhile, Sunway University’s Professor Dr Yeah Kim Leng shared that BNM’s assessment and decision to keep the OPR unchanged is in line with the expectations of most market economists and analysts.
“It has noted the pick-up in economic activities in the first four months of the year and also recognised the dent to the recovery momentum caused by the latest lockdown, but remains sanguine about the recovery prospects through next year,” he said as quoted by Bernama.