OPR likely to stay at 1.75%

There are market expectations that Bank Negara would initiate further cuts of up to 25 basis points to the OPR at the beginning of this year, which did not materialise.

KUALA LUMPUR: The overnight policy rate (OPR) is likely to stay unchanged at 1.75% following an anticipated recovery in the economy.

There are market expectations that Bank Negara would initiate further cuts of up to 25 basis points to the OPR at the beginning of this year, which did not materialise.

If there had been a cut in OPR, AmBank Research said that the 3-month Klibor would have trended down to 1.69% from 1.94% presently.

“Recent macro indicators have shown signs of economic recovery taking place, ” the research house said.

Klibor generally refers to the interbank lending rate, or interest rate imposed by banks when they are lending funds to each other.

As a trading nation, Malaysia’s economy is benefiting from improving global trade and growth.

Firm commodity prices are also lending support to growth, ” AmBank Research said.

“Although headline inflation is poised to rise in the second quarter, it would be a temporary spike due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter, ” it added.

AmBank Research said inflation figures could reach a high of 5% in the second quarter but despite this, underlying inflation is expected to remain subdued as there continues to be spare capacity in the overall economy.

It noted that even though the financial markets have experienced bouts of volatility from time to time, the overall financial conditions still remain supportive of economic activities.

“The positive wealth effect from the domestic equity market supported by retail investors and the still favourable bond market will provide positive impetus to the overall economic performance, ” AmBank Research said.

The research house noted that economic growth is expected to improve from the second quarter of this year, driven by the recovery in global demand.

“The risks to the growth outlook have abated slightly. But growth remains tilted to the downside, primarily due to uncertainty over the path of the Covid-19 pandemic and effectiveness of the vaccination programmes, ” it said.

With this, AmBank Research said economic growth for 2021 is projected at around 6% which could reach a high of 7% and with downside risks at 5.5%.

There is also poised of an increase in public and private sector expenditure amid the continued support from policy measures, more targeted containment measures and an economic growth from a low base, it said.

“Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electrical and electronics and primary-related sub-sectors, as well as oil and gas facilities, ” AmBank Research said.

It also noted that the eventual domestic Covid-19 vaccine programme will then help lift sentiment and economic activities around the country.

These had helped to facilitate an improvement in private demand and labour market conditions, the research house said.

It also pointed out that the overall business sentiment and consumer confidence has improved with loan growth inching up and looking positive.

“There is room for a rate hike in the first quarter of 2022 with a 25 basis points increase to 2.00%. Should that happen, the 3-month Klibor would rise to 2.25%, ” it said.

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Bank Negara , OPR , interest rate , cut , economy , recovering ,


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