The week ahead - Budget 2021, OPR focus


Last week, the Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah advised all MPs, regardless of their parties, to stop the political squabbling and give their full support to Budget 2021. Meanwhile, Bank Negara convenes its monetary policy committee (MPC) meeting of 2020 tomorrow. The meeting will be MPC’s last for this year.

Budget 2021, OPR in focus



BUDGET 2021 and Bank Negara’s monetary policy decision are the two key events that will be closely watched this week.

The government will be tabling Budget 2021 on Friday, a much-anticipated announcement in the current political situation.

Last week, the Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah advised all MPs, regardless of their parties, to stop the political squabbling and give their full support to Budget 2021.

Meanwhile, Bank Negara convenes its monetary policy committee (MPC) meeting of 2020 tomorrow. The meeting will be MPC’s last for this year.

Standard Chartered Bank (StanChart) expects Bank Negara to cut the overnight policy rate (OPR) by another 25 basis points (bps) in the upcoming MPC meeting.

ING senior Asia economist Prakash Sakpal said the central bank was widely expected to leave policy on hold, leaving the overnight policy rate at 1.75%.

However, ING won’t entirely rule out a rate cut in view of the latest second wave developments.

Unlike most Asian peers, Bank Negara has sufficient easing space from negative inflation, while there is limited leeway for fiscal policy after a record stimulus unleashed earlier this year.

Prakash noted that the upcoming budget had become a contentious political issue in view of a slim coalition majority.

Amidst the ongoing power struggle, fears are that the budget bill might not get through Parliament and this will cause yet another political crisis.

The OPR currently stands at 1.75%. According to a Bloomberg poll, all 12 economists expect no change at 1.75% except one economist expecting a 25-bps rate cut to 1.5%.

Indonesia’s GDP

INDONESIA is expected to announce its third -quarter gross domestic data (GDP) on Thursday. The GDP data is expected to contract at an annual rate of 6.1% in the quarter, according to IHS Markit estimates.

According to ING, the consensus of a slightly smaller GDP fall than -5.3% year-on-year (y-o-y) in the second quarter looks likely, given the continued pounding of the economy. Hence, the house views a steeper GDP fall of 5.6% y-o-y.

Indonesia’s GDP was down 5.32% y-o-y in the second quarter.

US presidential election

THE US presidential election will take centrestage this week. The Fed policy meeting will also be closely watched, especially if a decisive election helps clear some of the political and fiscal uncertainty.

According to UOB Global Economics and Markets Research, whether the outcome is a Joe Biden presidency or a Donald Trump second term, the first task for both is to pass the much-needed Phase IV fiscal stimulus and that will be a driver for further US dollar weakness.

Asian PMI data

WITH flash PMI data indicating that the global economy is seeing a sluggish start to the fourth quarter amid the global resurgence of coronavirus infections, all eyes will be on the October purchasing managers’ index (PMI) update for 14 markets across Asia Pacific to assess regional economic trends.

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