Economists expect another OPR cut soon

There’s growing strain on Malaysia’s economy, with experts urging for more stimulus from BNM to cushion the effects


MALAYSIA’S economy needs an urgent boost after the country’s growth cooled to its weakest in a decade, easing to 3.6% in the fourth quarter of 2019 (4Q19) on the back of weak external demand.

The sharp decline marks a growing strain on Malaysia’s trade-reliant economy, with experts urging for more stimulus from the central bank to cushion the effects of ongoing trade frictions between the US and China, and the coronavirus disease 2019 (Covid-19) outbreak.

OCBC Bank economist Wellian Wiranto expects Bank Negara Malaysia (BNM) to further cut its Overnight Policy Rate (OPR) come March. The benchmark rate is currently at its lowest since March 2011 after BNM made a decision to reduce it by 25 basis points to 2.75% last month.

“While supply disruptions — in crude palm oil, crude and gas — contributed to the hit, the sharp degree of the momentum slowdown signals that the economy has entered 2020 on a weak footing even before the Covid-19 outbreak. “Even as the epicentre of effects — tourism — comprises just 5.8% of the economy, the broader fear factor would hit consumption as well. The already-cautious BNM would likely step in further to help. March 3rd may see another OPR cut,” he said in a note yesterday.

Australia & New Zealand Banking Group Ltd economists Mustafa Arif and Sanjay Mathur said the weaker than expected 4Q19 numbers add further context to BNM’s surprise policy rate cut in January.

“The rate cut should serve to guard against downside risks to growth. At this stage, we cannot rule out another policy rate cut if economic conditions worsen. It is also conceivable that the government may consider front-loading its 2020 budget spending,” they said.

Finance Minister Lim Guan Eng recently said a stimulus package to temper downside risks from the coronavirus will be announced by the end of this month or early next month. In 2003, a fiscal stimulus package worth RM7.3 billion was unveiled to support the fragile growth during the SARS outbreak.

Credit rating agency RAM Rating Services Bhd said prolonged risks from the epidemic could shave 0.2%-0.5% off Malaysia’s growth projection for 2020. RAM has kept its forecast at 4.5%.

“We highlight that this is currently our best estimate of the impact given the still-fluid situation and a lack of confirmed official data. That said, the potential support from monetary and fiscal policies will play an integral role in sustaining growth momentum.

“Expedient roll-out of projects, as well as accommodative credit conditions, are critical to driving growth this year amid such highly uncertain conditions,” it said.

Meanwhile, Institute for Democracy and Economic Affairs Malaysia CEO Ali Salman said there are many signals in the economy that need to be taken heed of, including low private investment which has extended over several quarters and falling imports of capital goods and machinery.

“Malaysia’s stock market (also) performed poorly in 2019. So, aside from weathering a turbulent external environment, a clear economic strategy from the government is needed to give Malaysian businesses the confidence to invest and grow,” Ali said.

“It is clear that political uncertainty and lack of coherent economic strategy are undermining sentiment among private business, which is needed to drive economic growth. The government needs to move beyond the focus on politics and provide a clear direction for the Malaysian economy,” he added.