KUALA LUMPUR, Nov 4 — Maybank Investment Bank Bhd Research (Maybank IB Research) said Bank Negara Malaysia’s (BNM) decision to maintain the Overnight Policy Rate (OPR) at 1.75 per cent is to make way for Budget 2021.

It said the budget, which is scheduled to be tabled in Parliament on Friday, is expected to remain expansionary, with a deficit forecast of RM90 billion, or 6.0 per cent, of gross domestic product (GDP) versus the estimated RM95 billion, or 6.7 per cent, of GDP in 2020.

“BNM kept the OPR at 1.75 per cent for the second consecutive Monetary Policy Committee (MPC) meeting to preserve monetary policy space,” it said in a note today.

Maybank IB Research said BNM’s decision was also consistent with indications that the economic recession is “shallowing” after the slump of GDP in April or the second quarter of 2020 (-17.1 per cent), which is supportive of the current official real GDP forecast of growth of between +5.5 per cent to +8.0 per cent in 2021, after the -3.5 per cent to -5.5 per cent performance in 2020.

Aside from the pause in the OPR, the research house noted that the use of other monetary policy instruments to boost liquidity and provide reliefs to the economy have “tapered”, hence, reducing the need for monetary policy intervention via an OPR cut and/or liquidity measures.

“That included the slowing BNM’s purchases of the Malaysian Government Securities, shift to targeted loan moratorium extension and flexible loan repayments after the end of the automatic/blanket loan moratorium period from April to September, 2020,” it said.

For now, Maybank IB Research expected the OPR to stay at 1.75 per cent until end-2021, but continue to view this is a “dovish pause” amid the downside risks economic outlook highlighted in the latest Monetary Policy Statement.

In a separate note, AmBank Group reiterated its 2020 GDP growth outlook at -3.6 per cent to -5.6 per cent, close to BNM’s growth target of -3.5 per cent to -5.5 per cent after the central bank kept the OPR unchanged at 1.75 per cent yesterday.

Chief economist and head of research Dr Anthony Dass expects the massive fiscal stimulus packages (PRIHATIN, PRIHATIN SME+, Penjana and KITA PRIHATIN) worth RM305 billion, or accounted for 21 per cent of GDP, should support the domestic economy.

On BNM’s caution over the downside risk due to further resurgence of Covid-19 infections which could lead to weaker business, employment and income conditions, he believed the impact could be transitory.

“Better global GDP and trade outlook, added with domestic stimulus measures, should see the domestic economy grows around 5.5 per cent to 6.0 per cent for 2021,” he said.

Yesterday, BNM, in its final MPC meeting for this year, decided to maintain the OPR at 1.75 per cent, bringing the cumulative rate cut for 2020 to 125-basis point.

This was also the second time in a row that the central bank left the policy rate unchanged, where nine out of 17 economists predicted no rate cut, said Dass. — Bernama