Another cut may not necessarily guarantee economic recovery despite continued severe impact of the pandemic, says economist
by ASILA JALIL / pic by RAZAK GHAZALI
BANK Negara Malaysia (BNM) will likely maintain the Overnight Policy Rate (OPR) at 1.75% despite a resurgence of new Covid-19 cases in recent weeks, analysts said.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told The Malaysian Reserve (TMR) while the impact of the pandemic continues to be severe, another OPR cut would not necessarily guarantee economic recovery.
He said advanced economies, especially in Europe and Japan, went into negative rates following the Global Financial Crisis, but they have yet to normalise their monetary policy given the prolonged low interest-rate environment.
The focus now should be on ways to utilise those measures announced by the government to ease the burden of businesses and households that are heavily impacted by the pandemic.
“I am more inclined to say BNM could refrain from cutting the OPR. The main issue is not OPR or the price of money because it is already cheap. The main thing now is the access to credit and how policymakers can facilitate the process of helping affected businesses and individuals,” he said.
Malaysia has seen a spike in the number of daily positive cases since Oct 1, as the country enters the third wave of the Covid-19 pandemic. The highest daily increase recorded was on Oct 6, with 691 new infections.
Putrajaya enforced a two-week Conditional Movement Control Order (CMCO) for Kuala Lumpur, Selangor and Putrajaya starting yesterday to curb the spread of the virus.
MIDF Amanah Investment Bank Bhd economist Abdul Mui’zz Morhalim said the CMCO will not bring a significant impact onto the country’s economy as businesses are still allowed to operate.
At the same time, sectors such as construction, mining and agriculture will continue to operate under the standard operating procedures set for each industry.
“In terms of policy response, we do not think BNM will ease OPR further after a cumulative 125-basis-point (bps) cut this year. Based on recent indicators and data releases, there are signs of recovery in trade activity, industrial production, domestic consumption and the labour market,” Abdul Mui’zz told TMR.
He said the monetary policy is a blunt policy tool where any adjustments made in the OPR will affect all sectors in the economy, including those least impacted by the economic slowdown.
Abdul Mui’zz also opined that targeted policy support is a more appropriate approach to cushion the adverse impact of the pandemic onto the economy.
“Fiscal programmes such as the targeted wage subsidy programme and Bantuan Prihatin Nasional handouts for low-income groups will be more effective to assist those who are most vulnerable and hardest hit by the Covid-19 pandemic,” he added.
AmBank Group chief economist and head of research Dr Anthony Dass said there may be a possibility for the OPR to be cut further as the upcoming decision will be highly dependent on the number of infections.
He said a reduction by 25bps in the policy rate is possible as the central bank has room for another rate cut should the government impose a movement restriction similar to what was done during the first phase of the MCO.
“However, if the situation is under control and with economic indicators picking up gradually, then, the need for a rate cut may not be there. Most countries are currently maintaining their policy rates,” Dass told TMR.
In its last meeting on Sept 10, BNM’s Monetary Policy Committee (MPC) decided to maintain the OPR at its current rate amid signs of improvement in the domestic economy following the easing of pandemic containment measures.
The MPC is scheduled to meet next on Nov 3, 2020.