Mixed views on further rate cut, says IHS Markit

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

THERE are mixed expectations whether Bank Negara Malaysia’s (BNM) Monetary Policy Committee will decide to cut the Overnight Policy Rate (OPR) again.

According to IHS Markit Ltd, Malaysia central bank watchers have mixed views on whether further stimulus will be announced at the committee meeting on Sept 10.

“Deflationary pressures and prospects of further economic uncertainties have led to increasing calls for more rate reductions to support the economy,” it said in its weekly report titled “Week Ahead Economic Preview”.

BNM maintained the policy rate at 1.75% in August but has reduced the rates four times so far this year, with the last cut seen in July.

IHS Markit said the recent Purchasing Managers’ Index data showed that Malaysia has sustained its recovery from the Covid-19 downturn, although August survey data signalled an easing in manufacturing output growth and continued softening of orderbook volumes.

Factory jobs were also reduced at a survey-record rate, it added.

Meanwhile, severe travel bans by many Asia-Pacific countries have brought international tourism travel in the region to a halt since late March, with many countries restricting entry to their own citizens and residents.

Australia has banned travel by their own citizens, restricting their own citizens from leaving the country since March 2020, except in exceptional circumstances with government approval.

Malaysia has also imposed severe travel restrictions on their citizens leaving the country, although these have been gradually eased.

Faced with the complete collapse of international tourism in the Asia-Pacific region, the role of domestic tourism is becoming a key pillar for the survival of the tourism sectors in some Asia-Pacific countries.

“In the Asia-Pacific region, there has been no resumption of international tourism until the end of August 2020. However, domestic tourism has rebounded in a number of Asia-Pacific economies which have successfully contained their domestic pandemics, providing the only mitigation for the severe economic shocks that have hit the tourism industry.

“The economic consequences of the collapse in Asia-Pacific tourism are becoming more severe as the duration of the ban on international tourism becomes increasingly protracted,” it added.

The international travel bans and collapse in air travel in the Asia-Pacific region has hit the Asia-Pacific airline industry very severely, with several airlines having gone into voluntary administration and a number of others facing substantial financial restructuring or requiring state aid.

Many hotels were closed for long periods of time during national lockdowns. For those that have reopened, they have to rely on domestic tourism revenue.

This has imposed severe financial costs on the Asia-Pacific hotel industry, resulting in large-scale job losses or pay reductions.

At present, the most likely pathway out of the protracted collapse in Asia-Pacific tourism will be the rollout of mass immunisation programmes with a Covid-19 vaccine.