PETALING JAYA: Economists are divided over whether Malaysia’s overnight policy rate (OPR), which has been at an all-time low at 1.75% since July last year, will be cut at Bank Negara’s Monetary Policy Committee (MPC) upcoming meeting.
Ahead of the two-day MPC meeting starting today, economists do not share the same view even 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 (pic below) projected a 25bps cut 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 that they penciled in a reduction, albeit a close call given the additional stimulus measures announced by Prime Minister Tan Sri Muhyiddin Yassin yesterday.
Goh added that 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%.
In the first seven months last year, Bank Negara brought the rate down by 125 basis points starting January, following signs of economic slowdown since 2019 before the Covid-19 cases started to rise, which then triggered lockdowns globally early last year.
However, this was not as aggressive compared with the Global Financial Crisis of 2008 and 2009 which saw the central bank slash the OPR by 150 basis points in four months.
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.
At this juncture, Mazlina stressed that any 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 that the transmission mechanism of monetary policy will take time to have an impact on the economy.
OCBC Bank chief economist Selena Ling (pic below) said Bank Negara’s sanguine tone on growth prospects in the last MPC meeting in November would have turned more downbeat by now in the face of recent events.
She said there is a heightened change of a a rate cut to 1.5% and depending on how things pan out in the pandemic fight in the weeks thereafter, there might be another cut to 1.25% in March.
Maybank IB Research said in a note yesterday that it expected no OPR revision due to “passive easing”, as real OPR changed to negative in 2021 versus positive in 2020.
It forecast the inflation rate this year to be 2% as compared to a deflation of -1% last year, resulting in a -0.25% real OPR in 2021 as compared to 2.75% real OPR in 2020, tantamount to a 300bps decline against a drop of 10bps last year.
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 all banking counters in the red yesterday except for BIMB Holdings Bhd which closed unchanged.
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