KUALA LUMPUR, Malaysia (July 5): Bank Negara Malaysia (BNM) is expected to decrease the Overnight Policy Rate (OPR) by 25 basis points to a new low of 1.5 percent during its Monetary Policy Committee meeting on Thursday, according to Nomura Research (July 8). According to its top Asean economist Euben Paracuelles, the rate decrease is feasible due to the recent shutdown, which is projected to hinder the economic recovery momentum.
It’s worth noting that Selangor and Kuala Lumpur account for almost 40% of the country’s GDP (GDP).
“The downside risk that BNM has been warning about in recent months is now manifesting itself, necessitating a change in policy stance to improve accommodation and support the recovery,” he said in a media conference call on the “2021 Asia Economic, Currencies & Equities Mid-Year Outlook.”
After slashing 125 basis points in the first half of 2020 to implement an expansionary monetary policy to keep the domestic economy from worsening, the OPR has been steady at 1.75 percent since July last year.
Given the stubbornly high daily new Covid-19 instances in the Klang Valley, the enhanced mobility control order (EMCO) is being applied in various sections of Selangor and Kuala Lumpur for two weeks starting last Saturday (July 3) until July 16.
He cited the country’s high household debt-to-GDP ratio of over 90% last year as well as lower-than-expected inflation as further factors for the rate drop.
“About 80% of bank loans have variable rates, which means that if the policy rate falls, the lending rates for these loans will fall as well, helping to relieve some of the debt burden.”
“For the past few months, inflation has underperformed the BNM’s prediction significantly. They (the BNM) predicted headline inflation of 6.5 percent to 7%, while the actual figures were less than 5%. In addition, core inflation has been modest and stable “Euben went on to say.
Malaysia’s Consumer Price Index (CPI) increased by 4.4 percent in May compared to the previous month, owing to a reduced base effect and a 26 percent increase in the transportation segment.
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Malaysia’s GDP growth prediction for 2021 has been lowered to 4.4 percent by Nomura./n
