Uncertain economic data projections and OPR being at historic low indicates that BNM will maintain the status quo
by PRIYA VASU / pic by TMR FILE
BANK Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 1.75% at its policy meeting tomorrow, adopting a wait-and-see approach as the cautious reopening of the economy continues amid the Covid-19 pandemic.
The central bank has already slashed the policy rate by 125 basis points (bps) this year alone after the last four Monetary Policy Committee (MPC) meetings, bringing the benchmark lending rate to the lowest ever since its introduction in 2004.
“We expect BNM to pause and take stock for the following reasons. First, global economies (including Malaysia) are reopening and higher-frequency data shows a clear pick-up in activities,” Standard Chartered chief economist for Asean and South Asia Edward Lee (picture) said in a report yesterday.
Economic data projections also remain uncertain due to lockdown disruptions and the OPR being at a historic low already indicates the central bank will maintain the status quo.
“With some pandemic restrictions still in place, further rate cuts may have only a limited marginal impact and reduce future policy space,” Lee said.
The central monetary authority has room to adopt a wait-and-see stance, he added.
“If a recurrence of infections threatens the activities recovery (global and local) or if the implementation of fiscal measures is weak, BNM could cut policy rates further,” he added.
Maybank Investment Bank Bhd and JF Apex Securities Bhd also expect the benchmark lending rate to remain unchanged for the rest of the year.
On the other side, DBS Group is anticipating a 25bps reduction this week to better align the risks in inflation and growth, while AmInvestment Bank Bhd foresees a larger 50bps cut this month, bringing the rate to 1.25%.
BNM is slated to announce the decision on the OPR after the MPC meeting.
It has been slashing the OPR since January this year in a bid to stimulate the economy amid mounting concerns over weak economic conditions caused by the pandemic.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told The Malaysian Reserve recently that the central bank has the policy space to continue lowering the OPR, in light of a low inflation rate.
Malaysia’s inflation rate contracted for a second consecutive month to -1.3% in July after coming in at -1.9% in June, as household consumption and domestic tourism continued to regain momentum under the Recovery Movement Control Order (RMCO).
RHB Bank Bhd sees no further OPR cuts this year following the reopening of various sectors in the country.
Its group MD Datuk Khairussaleh Ramli said a reduction would largely depend on the pace of recovery in the domestic economy, which he believes will show growth by the fourth quarter of 2020 (4Q20).
Malaysia’s GDP contracted by 17.1% year-on-year in the 2Q20, its lowest in nearly 22 years, due to the effect of the MCO.
The central bank stated that a gradual recovery would take place in the second half of the year, with a rebound to follow in 2021 premised on the “V”-shaped recovery seen in indicators such as exports and the indices of industrial production and wholesale and retail trade recently.