Mixed prospect on interest-rate cut in final MPC meeting

While there are some early signs of stabilisation from manufacturing, the virus spread containment measures will impact services, says economist

by NUR HAZIQAH A MALEK / pic by MUHD AMIN NAHARUL

BANK Negara Malaysia (BNM) is scheduled to hold its final Monetary Policy Committee’s (MPC) meeting this year tomorrow with analysts expecting further interest-rate cut, said IHS Markit Ltd.

AmInvestment Bank Bhd chief economist Dr Anthony Dass said the door for further monetary easing remains open.

“A 25-basis-point (bps) cut during the meeting with a high of 50bps from the current Overnight Policy Rate (OPR) of 1.75% would augur well for economic recovery,” he said in a research note last Friday.

Dass said following the 25bps cut to 1.75% in July, BNM left the policy rate unchanged during the September MPC meeting as the economic activity continued to recover from the trough in April, supported by the monetary and financial measures.

“The question now is whether BNM will hold or reduce the OPR in November.

“While there are some early signs of stabilisation from manufacturing, the virus spread containment measures will impact services,” he said.

Dass said there were also serious issues in areas like the job market, income reduction, post-moratorium impact, bankruptcies, non-performing loans, external headwinds and domestic non-economy.

“Johor — which accounts for 9.4% of national GDP and 10.8% of the country’s establishment of small and medium enterprises — remains badly affected from the Singapore border closure,” he said.

The upcoming Budget 2021 that will be unveiled on Nov 6 plays a crucial role, the economist noted.

“With the recovery being uneven across the sectors, the budget is expected to be big.

“The deficit is likely to be around between 5.5% and 6% of the GDP, which is aimed to continue supporting the economic recovery from the adverse impact of the pandemic,” he said.

Hence, the monetary policy will also need to play a crucial role, he added.

Meanwhile, UOB Global Economics and Market Research senior economist Alvin Liew opined that BNM will keep the OPR unchanged at 1.75% in November as the central bank has other policy levers that can be used to support the recovery.

“The lower bound of BNM’s GDP projections of -3.5% to -5.5% for this year does assume downside risks, including a setback in global growth, prolonged Covid-19 outbreak and targeted Movement Control Order in high risk areas. Moreover, we expect further fiscal support measures in the coming Budget 2021. As such, we expect BNM to keep the OPR unchanged at 1.75%.

According to a Bloomberg poll (as at Oct 30), all 12 economists (including UOB) expect no change at 1.75%, except one economist who is expecting a 25bps rate cut to 1.5%.