Bank Negara seen holding key rate amid spike in Covid-19 cases

KUALA LUMPUR: Malaysia's central bank is expected to leave its key interest rate at a record low on Thursday to help support the economy's recovery as coronavirus cases rise, even as it has benefited from strong external demand.

All 13 economists polled by Reuters saw Bank Negara Malaysia (BNM) keeping its overnight policy rate at a historic low of 1.75% on Thursday. The central bank had cut its benchmark rate by a total of 125 basis points last year.

"We think BNM is more focused on the vaccination programme’s ability to secure the recovery in the medium term, especially given fears that further rate cuts could exacerbate financial stability risks," Barclays said in a research note.

"However, BNM is unlikely to embark on a path of policy normalisation either, as travel activity remains substantially below pre-pandemic levels."

Barclays said it expected rates to remain steady this year and only rise in 2022.

Malaysia's economy saw its biggest full-year contraction in over two decades last year as it imposed strict coronavirus curbs for most of 2020. Policymakers are now having to balance buoyant exports with concerns that a spike in coroanvirus cases could derail the recovery.

The economy shrank 5.6% last year - its worst performance since the Asian Financial Crisis. Exports surged 31% year-on-year in March, its quickest pace in nearly four years.

Analysts say the pace of recovery will also depend on how the coronavirus situation develops.

While its coronavirus vaccination programme is well under way, Malaysia is facing a fresh spike in coronavirus cases and has reported more than 415,000 infections in total so far, the third highest infection rate in the region behind Indonesia and the Philippines.

As of Sunday, over 905,000 people have received at least one vaccine dose since the Southeast Asian nation launched its national vaccination programme in February, according to health ministry figures. - Reuters

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Bank Negara , OPR , benchmark rate


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