KUALA LUMPUR: Bank Islam Malaysia Bhd expects Bank Negara Malaysia (BNM) to cut its overnight policy rate (OPR) by 25 basis points (bps) at the upcoming Monetary Policy Meeting scheduled for March 4.
Chief economist Dr Mohd Afzanizam Abdul Rashid said the reduction projection was due to the visibility of economic uncertainties following the reintroduction of Movement Control Order (MCO 2.0).
He said the mobility restrictions would create a serious impact on the economy if it is further extended and the period remains unpredictable.
"Therefore, Bank Negara has to come in through an OPR cut. Whatever it is, all depend on the period of MCO,” he told Bernama.
Mohd Afzanizam said the projection has taken into account the COVID-19 vaccine -- a variable that is still uncertain to take place.
He said the risk of vaccine rejection by the public could also hamper the journey towards recovery and provide uncertainties to the economic growth.
The OPR currently stands at a record low of 1.75 per cent. BNM reduced a cumulative 125 basis points in the key interest between January and July 2020.
The central bank kept the OPR unchanged during its first meeting for this year on Jan 20, as it sees continued recovery in the global economy.
Mohd Afzanizam said a reduction in the OPR would help lower the borrowing cost and increase spending in the ecosystem, especially among companies for, among others, capital expenditure, expansion and upgrading.
Nevertheless, the move would definitely hurt the banking industry as it could reduce its net interest margins.
He expressed confidence that the OPR cut would only be an one-off circumstance for this year and BNM would not reduce its further near zero.
Nearer to home, the Bank of Thailand cut its policy rate three times last year to an all-time low of 0.50 per cent to help mitigate the impact of the pandemic on tourism and domestic consumption.
BNM left the benchmark interest rate unchanged during the recent policy meeting on Feb 3 as fiscal measures took the lead in reviving the economy amid COVID-19 resurgence. - Bernama