OPR cut looks more certain now, MARC says

BNM has been rightfully cautious about adjusting the policy rate to ensure sufficient ammunition, says the agency


ANOTHER policy rate adjustment by the central bank is now looking more certain as Malaysia will likely arm itself with both fiscal and monetary measures this year, said the Malaysian Rating Corp Bhd (MARC).

“On the fiscal side, the government is already planning to introduce a stimulus package in the near term. In our view, these efforts should be applauded.

“On the monetary side, Bank Negara Malaysia (BNM) has been rightfully cautious about adjusting the policy rate to ensure sufficient ammunition is available at a time when the economy needs it the most,” it said in a statement yesterday.

The rating agency asserted that BNM must take into consideration the effectiveness of such policy, given the diminishing impact of lowering interest rates on the economy.

“Having said this, it is worth noting that the recent Covid-19 outbreak has the potential of impacting the global economy in a manner greater than initially anticipated.

“Firstly, the severity of the outbreak exceeds the previous SARS outbreak in 2003. Secondly, the size and contribution of the Chinese economy to the world economy is far greater now than before,” it said.

The recent figures released by BNM showed growth in the fourth quarter of 2019 (4Q19) slipped to 3.6% from 4.4% in the preceding quarter, its slowest quarterly growth since 2009.

The 4.3% annual GDP growth recorded in 2019 stood below the country’s potential growth of 4.75% as estimated by the International Monetary Fund last year.

Overall moderation of the economy in 2019 was a reflection of the weaker global economy following lacklustre growth in global trade, supply-side disruption and falling business capital expenditure.

Meanwhile, Kenanga Investment Bank Bhd (Kenanga IB) expects BNM to slash the Overnight Policy Rate (OPR) by 25 basis points (bps) at the next Monetary Policy Committee (MPC) meeting on March 3, bringing the OPR to settle at 2.5% in the first half of 2020 (1H20).

The research firm has also revised its 1Q20 growth forecast to 3.2% from an initial projection of 3.8% with a whole year GDP growth slowing to 4%.

It stated in its report that the growth slowdown will extend into 1H20, with downside risks arising from the Covid-19 outbreak and weak external sector.

“The services sector, specifically the tourism-related industry and transportation, will be affected the most, thus making the Visit Malaysia 2020 campaign incredibly challenging,” said Kenanga IB in a statement yesterday.

However, the immediate weaker outlook is expected to be partially weathered by the potential uptick in domestic activities in 2H20 through the monetary-fiscal policy mix.

“The federal government is expected to announce the stimulus package soon in a bid to boost the economy following the fast-spreading outbreak,” it added.