All eyes on OPR
THE week opens with Bank Negara’s decision on the overnight policy rate (OPR). The monetary policy committee (MPC) of Bank Negara is expected to meet on Wednesday.
According to a Bloomberg poll, it will be a close call with six analysts calling for no change and five analysts expecting a 25-basis-point (bps) cut to a record low of OPR of 1.5%.
OCBC Bank Research expects Bank Negara to reduce the OPR by 25 bps to 1.50% due to the weaker economic outlook.
Its global treasury, research and strategy economist Wellian Wiranto (pic below) said there could be another rate cut to 1.25% in the March meeting.
DBS Group Research is also predicting Bank Negara to cut the OPR by another 25 bps to a new low of 1.5%.
UOB Global Economics and Markets Research has pencilled in another 25 bps rate cut to a new low of 1.50%.
ING senior Asia economist Prakash Sakpal opined that the significant surge in Covid-19 will push Bank Negara to cut the OPR by 25 bps to 1.50%.
He said unlike most other Asian central banks, which have almost exhausted their rate policies, Bank Negara still has room to cut the policy rate further.
Moreover, persistently negative inflation, which in November fell 1.7% year-on-year (y-o-y), has left real interest rates among some of the highest in the region. This is detrimental for recovery.
Meanwhile, the Statistics Department is expected to release the consumer price index (CPI) for the month of December 2020 on Friday.
The CPI declined 1.7% y-o-y last month to 120 points compared with 122.1 points in November 2019.
China – a big data week
CHINA is expected to release its gross domestic product (GDP) for the last quarter of 2020 today. It is also expected to announce industrial production, retail sales and fixed-asset investment. Meanwhile, China’s January one-year and five-year Loan Prime Rate fixing will be announced on Wednesday.
UOB expects growth to accelerate to 6.2% year-on-year (y-o-y) in the fourth quarter of 2020 from 4.9% y-o-y in third quarter 2020, but full-year growth will be at 1.9%.
The research house said China would be one of the few economies to stand out with positive growth amidst the pandemic.
ING believes the export-led recovery gained further traction in the last quarter, keeping GDP growth on a steady upward path.
It noted that export growth nearly doubled to 17% y-o-y in the fourth quarter of 2020 from 8.9% in the third quarter of 2020. This should outweigh any possible softening of domestic demand due to the renewed virus threat.
ING expects a 5.5% y-o-y fourth-quarter GDP growth, up from 4.9% in the third quarter, subject to an upside surprise.
It sees no changes to the benchmark one-year and five-year Loan Prime Rate, currently at 3.85% and 4.65%, respectively.
Central bank decisions
BANK Indonesia (BI) and Bank of Japan are expected to hold their respective meeting on Thursday for policy settings.
UOB still sees room for a final 25-basis-point (bps) cut by BI in the first quarter of 2021, bringing the seven-day reverse repo rate to an all-time low at 3.50%; especially if rupiah sustains its recent appreciation trend.
This could possibly happen in the January meeting, UOB said. However, this is against the consensus view.
According to a Bloomberg poll, 15 out of 16 analysts expect BI to keep its policy rate unchanged at 3.75%, with only one analyst expecting a 25 bps cut to 3.5% in January.
ING said both central banks would retain an accommodative stance in view of the recent rise in Covid-19 cases, though none are likely to change the current policy settings.
It noted that BI’s meeting may well be of interest, as low inflation kept this central bank firmly on an easing path. At 3.75% currently, the BI policy rate is one of the highest in Asia.