PETALING JAYA: Malaysia’s overnight policy rate (OPR) has been at its all-time low at 1.75% since July last year as Bank Negara’s Monetary Policy Committee (MPC) sought to accelerate economic recovery post movement control order (MCO).
Ahead of the MPC's first two-day meeting this year starting on Wednesday, economists are quite divided this time around as Malaysia is placed under a second round of MCO, with both sides of the fence having strong views on why the central bank should maintain or cut the OPR.
A Bloomberg poll of 24 economists was equally divided between a retention of 1.75% and a reduction to a new low of 1.5%.
Reuters’ polled a more pessimistic view with nine out of 15 economists expecting a cut to 1.5%, five expecting the rate to be maintained while another expected a 50 basis points (bps) cut to 1.25%.
UOB Malaysia senior economist Julia Goh was one of them who projected a 25bps cut to 1.50% in view of the worsening pandemic, tighter containment measures and weaker growth outlook.
“We are cautious as risks are tilted to the downside particularly as MCO 2.0 weighs on private consumption and seasonal Lunar New Year spending, while the unemployment rate remains elevated.
“That said, all current fiscal and monetary policy support will continue to sustain the growth recovery as the year progresses alongside the vaccination plan that is scheduled to begin by the end of the first quarter, ” she told StarBiz, adding they penciled in a reduction, albeit a close call given the additional stimulus measures announced by Tan Sri Muhyiddin Yassin on Monday.
In his announcement at 4pm on Monday, the Prime Minister expects the impact of the current MCO on the economy to be manageable as growth will continue to be supported by strong exports sector and the global trade recovery.
He added the economic stimulus packages, Budget 2021 and the RM15bil Perlindungan Ekonomi dan Rakyat Malaysia (Permai) assistance package will continue to boost consumption.
Meanwhile, Goh added much will depend on the duration of the MCO and allowing businesses in key sectors to operate, which will help moderate the impact on the economy.
She revised down her 2021 GDP growth projection from 6% to 5%.
MIDF Research economist Mazlina Abdul Rahman expected Bank Negara to maintain the OPR at 1.75%, saying that another cut could alleviate stress but will likely have limited impact to the overall economy.
“MCO 2.0 will have some adverse impact to Malaysia’s GDP particularly in the first quarter but in general, the economy will remain on a recovery path.
“The MCO this time is also less stringent than the first one. The impact is also expected to be less severe than what we had previously as businesses and consumers have adapted to the new norm and took necessary steps for survival, ” she said, adding that some positive elements also emerge from the upcoming availability of the Covid-19 vaccine.
Mazlina stressed sny support to the economy has to be on a selective or targeted basis.
“This is to ensure those who are really affected get the assistance and we avoid overdoing things as we need to save some bullets in the event of any worse economic conditions.
“We need to be aware that monetary policy is a blunt policy tool which will affect all sectors in the economy, including those who are least affected by the current situation, ” she said, adding the transmission mechanism of monetary policy will take time to have an impact on the economy.
Bloomberg Economics expected Bank Negara to leave the policy rate unchanged even as Malaysia's near-term economic outlook has worsened since November.
“For one, 125 bps of easing is already in the pipeline from last year and conventional policy ammunition has become low enough to warrant becoming frugal, ” it said.
The stock market factored in the risk of another rate cut, which saw most banking counters in the red.
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