KUALA LUMPUR, March 4 — Economists opine that Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 1.75 per cent this year to ensure the policy interest rate remains accommodative to support the economic recovery.
Following the central bank’s decision at its second Monetary Policy Committee (MPC) meeting today, MIDF Research said no further easing is needed as the cumulative 125-basis point cut last year will continue to provide support to the economy.
“The decision is in line with our expectation for no change in the monetary policy as the economy remains on recovery path despite short-term challenges from the movement control order 2.0 (MCO 2.0) restrictions,” it said in a note today.
“In view of the government’s decision to gradually ease restrictions, allow more economic activities to reopen and resume, and with all states no longer placed under the MCO 2.0 from March 5, 2021, we expect confidence in the economy to improve.
“The sentiment will be further boosted by the vaccine administration, which will be more widely available in the latter part of the year. We foresee retail spending to slowly recover as consumers take the chance to go out and increase their spending activities,” it added.
In July last year, BNM reduced the OPR to 1.75 per cent, a record low since the floor was set in 2004. It has since maintained the rate.
Concurring with this view, OCBC Bank economist Wellian Wiranto said the bank also does not expect BNM to cut rate anytime soon, and the baseline scenario of some recovery coming through would indeed point towards the high possibility that the OPR would stay unchanged for the rest of the year.
“BNM would probably find the most comfort in keeping the OPR unchanged for a while, even if it would continue to telegraph the potential for easing if necessary,” he said.
CGS-CIMB Research furthermore said it believes short-term interest rates are likely to remain anchored for some time.
“The policy statement detailed BNM’s view that the acceleration in headline inflation in the second quarter this year is driven by base effects and commodity prices, while underlying inflation is expected to remain subdued amid continued spare capacity in the economy,” it said in a note.
“To reflect these developments, we recalibrate our OPR outlook from an expectation of a 25 basis point cut in the first half of 2021 to a pause in 2021, and revise our end-2021 OPR forecast from 1.50 per cent to 1.75 per cent.”
Meanwhile, HSBC Global Research economist Joseph Incalcaterra said BNM is one of the few central banks with a high real policy rate that could be lowered to stimulate the economy.
“That being said, the central bank is optimistic that a robust recovery will settle in from the second quarter and has hinted that household debt disbursement ‘above the historical average’ may have been a reason against further easing.
“We agree with BNM’s broad assessment that after first quarter, Malaysia should see a robust recovery thanks to the credible vaccination plan coupled with a well-positioned export sector.
“We forecast no further changes to the OPR this year,” he said. — Bernama
