OCBC Bank: BNM likely to cut OPR again


BANK Negara Malaysia (BNM) is expected to cut interest rates to a historic low tomorrow to ease added pressure from the reimposition of the Movement Control Order (c) after an emergency was declared by the King on Jan 11.

Oversea-Chinese Banking Corp Ltd (OCBC Bank) chief economist Selena Ling said BNM’s Monetary Policy Committee (MPC) could further reduce the policy rate by at least 25 basis points in its first meeting of the year.

“With the relatively dim prospect of large-scale fiscal help, the onus is for the monetary policy to shoulder the burden more considerably.

“When BNM left its Overnight Policy Rate (OPR) unchanged at 1.75% for the second time running in its last MPC meeting in November, the central bank still sounded quite sanguine on growth prospects.

“We expect the tone to have turned more downbeat by now in the face of recent events, and we see a heightened chance of a rate cut to 1.5% in the upcoming meeting on Wednesday,” she said in a statement yesterday.

Ling said BNM could further reduce the interest rate to 1.25% in the MPC’s second meeting in March, depending on the development of the pandemic, which poses a downside risk to the country’s recovery and Malaysia’s GDP growth this year.

Given the risks, the local economy is expected to shrink on both the sequential and annual basis in the first quarter (1Q) of this year, with expected declines of 0.6% quarter-on-quarter and 0.1% year-on-year (YoY).

Ling expects Malaysia’s economy to grow at 5.7% YoY this year, below the government’s consensus, based on the bank’s new estimation.

“The culmination of recent events and distinct likelihood that the MCO may be extended beyond the current stipulated period of two weeks are likely to pressure the growth in 1Q and further.

“The softer growth outlook will bring some challenges to the authorities in terms of remedial measures,” she said.

Growth momentum in the second half of 2021 may accelerate should the rollout of vaccines both globally and domestically be smooth, boosting business and consumer confidence and prompting the gradual reopening of international borders.

However, Ling said it may be premature to assume that there will be no hiccups along the recovery trajectory.

“Even as growth surprised on the upside in 3Q20, we had cautioned before that 4Q momentum might be more challenged. The latest events could see growth becoming more curtailed in 1Q in particular.

“Even as exports continue to show signs of benefitting from a recovery in demand in electronic goods, the domestic segment would likely to continue to be a drag and potentially even more so now.

“While the MCO is not applied in a wholesale fashion across the country as per March and April 2020, the affected areas this time round are nonetheless the heavyweight regions, economically speaking,” she said.

The initial five states and federal territories that were placed under the MCO constitute 67.7% of the economy and will challenge the uptick on economic recovery in the context of employment, Ling said.

“The still-elevated unemployment rate, which went up to 4.7% in October, having declined to 4.6% in September from the peak of 5.3% in March, is a reminder that a soft labour market outlook would continue to crimp consumption.

“As it stands, the MCO is slated to last only for two weeks, though it may well be extended unless the number of cases starts to come down dramatically in the coming week or so,” she said.