KUALA LUMPUR, Malaysia (July 9): After the Monetary Policy Committee (MPC) meeting yesterday, economists expect Bank Negara Malaysia (BNM) to keep the existing overnight policy rate (OPR) of 1.75 percent till the end of the year. According to CGS-CIMB Securities, the central bank held the benchmark rate unchanged for the sixth consecutive meeting, as expected by 19 of 21 economists polled by Bloomberg.
In a research note, the stockbroking business wrote, “We maintain our end-2021 OPR prediction at 1.75 percent, expecting BNM to hold the policy rate during the remaining two MPC sessions in September and November 2021.”
According to CGS-CIMB, the decision to keep the OPR amid more uncertainty about the future for GDP growth shows that any push to lower the rate would need to be accompanied by a more severe and long-term deterioration in economic fundamentals.
“However, factors delaying the relaxation of containment measures or causing a further reduction in operating capacity, without matching remedial steps from the government or government-linked firms, could lead to a shift in monetary policy stance,” it continued.
BNM is projected to keep the policy rate unchanged in 2021, according to Kenanga Investment Bank Bhd, but the likelihood of a cut would increase if tighter containment measures were to continue.
“The BNM’s monetary policy mode is still adjusting to the change from dovish to neutral as it sees improvement in global economy, as well as rising commodity prices and headline inflation.”
In a research note released today, the bank stated, “Overall, the tone of the (policy) statement has not altered that much from the previous MPC meeting.”
BNM may contemplate a rate drop, according to Kenanga, because fiscal space is becoming increasingly constrained and debt headroom to finance the deficit is reducing, as well as efforts to promote small and medium businesses being limited or ineffective.
“However, for the time being, the chances of it happening are extremely remote. “We believe BNM would save its bullets and continue to let fiscal policy lead unless there is a significant danger to the financial market and the economy as a result of the pandemic’s negative spillover,” it added.
Meanwhile, Maybank Investment Bank Bhd (Maybank IB) has stated that it will not adjust its OPR for the remainder of this year and into next year.
In a research note, it predicted that a 25-basis-point OPR boost would come only in the fourth quarter of 2022.
It asserted “passive easing” via “real” OPR had materialized, and that real OPR had turned negative since April 2021 as inflation returned.
BNM has been aggressively using various policy measures for more direct intervention and immediate effect in tackling the economic consequences of the Covid-19 epidemic, according to Maybank IB.
AmBank Investment Bank Bhd, echoing the attitude, stated that the existing interest rate is adequate to accommodate the economy, and that further interest rate reductions are unlikely to assist promote the economy.
According to a note, the OPR is expected to remain constant throughout the year.
“New data and information, as well as the consequences on the overall forecast for inflation and domestic economy, will influence any decision to alter the OPR,” it added./n
