Bank Negara still has room for monetary easing


Kenanga Research said Bank Negara still has room to lean towards further monetary easing in January to further support the economy if the Covid-19 containment measures were further tightened for a prolonged period.

PETALING JAYA: The sharp improvement in Malaysia’s gross domestic product (GDP) for the third quarter has led to optimism of growth in the fourth quarter, although this could now be slower than initially expected with the resurgence of Covid-19 cases.

Kenanga Research said Bank Negara still has room to lean towards further monetary easing in January to further support the economy if the Covid-19 containment measures were further tightened for a prolonged period.

Despite the central bank’s optimism, it remained cautious as the economy began to suffer from the third wave of the pandemic and the containment measures implemented in the fourth quarter of 2020.

“Therefore, we maintain a 50% probability of a 25 basis points (bps) rate cut at the next Monetary Policy Committee (MPC) meeting in January.

“We revise downward our fourth quarter GDP forecast to -1.7%, bringing the 2020 forecast to settle at -5.1%.

“An expected global growth recovery and the impact of the large fiscal stimulus on the domestic economy would result in a projected growth rebound of 6.1% in 2021, ” the research house said in its economic viewpoint yesterday.

The central bank maintained the overnight policy rate (OPR) at 1.75% at its MPC meeting on Nov 3. This brought the cumulative rate cut to a total of 125bps after four cuts in 2020.

Kenanga added that the services sector would continue to be affected by inter-state travel restrictions and border closures and the manufacturing sector was expected to endure demand and supply chain disruption.

Meanwhile, the monsoon season is expected to weigh on the agriculture sub-sector but it would be partially supported by higher crude palm oil output and prices.

“On the external front, the United States and China trade jitters would continue to weigh on global trade as the market awaits more clarity on Joe Biden’s trade policy approach, ” it said.

CGS-CIMB Research felt that the recent Bank Negara policy statement indicated current monetary settings were adequately supportive and reiterated its end-2021 OPR forecast of 1.75%, implying an extended hold in the benchmark interest rate.

It agreed with the central bank that economic growth would recover strongly in 2021 and projected a GDP growth of 7.5%, on the back of fiscal and monetary stimulus tailwinds.

TA Securities Research said going into the fourth quarter and 2021, Malaysia may continue to rely on domestic demand, partly driven by ongoing support under Prihatin and Penjana stimulus packages and other measures under Budget 2021.

It was a tad concerned about the rising unemployment rate but expected the high lagging indicator may subside in the near term alongside improving economic activity.

TA Securities maintained its view that the GDP would grow moderately by 1.1% year-on-year (y-o-y) in the final quarter of 2020.

JF Apex Securities Research also projected a moderate growth in GDP for the fourth quarter, although downside risks were expected to persist due to the conditional movement control order.

“Overall, we foresee the external factors could pose headwinds to the nation’s GDP especially with the prevailing geopolitical risks on top of prolonged pandemic, ” it said.

AmBank Research felt that the improving trend was likely to be shortlived with the imposition of more restrictive measures that were already hurting the economy, as reflected by the forward-looking indicators presented in October, which showed signs of cooling off.

Its preliminary estimations suggested a contraction of around 3% to 3.5%.

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