malay03

Malaysia: Bank Negara likely to keep OPR unchanged

PETALING JAYA: The key benchmark interest rate, which is at an all time low of 1.75%, is expected to be maintained when Bank Negara convenes its Monetary Policy Committee (MPC) meeting tomorrow.

After a cumulative 125 basis points cut in the overnight policy rate (OPR) last year to fuel economic growth, economists agree that the current interest rate is sufficient to accommodate the economy.

A cut in interest rates is not likely to help to stimulate the economy due to inflationary pressure amid the pandemic and tighter restrictions. Most parts of the Klang Valley are under a two-week enhanced movement control order.

Inflation is projected to hover around 3.0% to 3.5% for the full year. The central bank has forecast inflation to be around 2.5% to 4.0% for the year. This would mean that the average inflation for the next seven months would be around 3.6% to 4.5%.

Economists concurred that the various stimulus packages announced by the government have helped put the economy on a stronger footing.

The ramping up of the vaccination rate in the second half would be a shot in the arm for the nation’s economy.

The latest stimulus package launched last month was the RM150bil National People’s Well-Being and Economic Recovery Package or Pemulih, bringing the total amount of stimulus to date to RM530bil, including RM83bil in direct fiscal injection.

Bank Islam Mohd Afzanizam

Bank Islam Mohd Afzanizam

Bank Islam chief economist Mohd Afzanizam Abdul Rashid (pic above) did not expect the OPR to be reduced.

He added that the government has been taking an active role in prescribing further measures to stabilise the economy through various stimulus packages.

“There is an additional Employees Provident Fund withdrawal scheme as well as an automatic loan moratorium under Pemulih.

“This will add more cash into the financial system. OPR is essentially the price of the money and at the moment, the level is already at an all-time low.

“In that sense, we are unsure what would be the benefits of having extremely cheap money when what the people need is access to credit and be able to sustain their business and livelihood.

“It may seem that bringing the OPR much lower may not bring the desired impact. So it is best to conserve the OPR for future needs. Just in case there is another economic shock that warrants further cut in the policy rate, ” Afzanizam said.

UOB Global Economics and Markets Research also expected the policy rate to be unchanged at 1.75%.

With additional fiscal aids to cushion the impact of a full movement restriction, the central bank is expected to monitor the fluid situation.

The research house added that the resumption of rate cuts may be tough in an environment of higher inflation expectations and other central banks maintaining the status quo.

AmBank Anthony Dass

AmBank Anthony Dass

AmBank Group economist Anthony Dass (pic above) said the OPR is likely to be maintained at 1.75%.

He said this is despite the heightened uncertainties driven by the pandemic and supply chain disruptions, as well as the delay in the reopening of the economy.

The key benchmark interest rate is unlikely to be tightened this year but more so by next year despite downside risk to growth.

Maybank Kim Eng macro research regional co-head Suhaimi Ilias (pic below) said the OPR would likely be maintained until the end of the year.

Suhaimi Ilias Maybank

Suhaimi Ilias Maybank

“In deciding the OPR, the central bank will look at several indicators, such as the sovereign yield and credit spread.

“They have all basically eased and there has been no recent tightening in these indicators, so this will also influence Bank Negara’s decision, ” he said at a webinar on Monday on the outlook of the second half of 2021.

Suhaimi said the various stimulus packages announced by the government would help to boost the economy.

“Also, in terms of the eight stimulus packages thus far, as at the end of June, only RM200bil has been utilised, so there is a lot left to be expanded, ” he said.

However, OCBC Bank economist Wellian Wiranto (pic below) said the Covid-19 pandemic and tightening restrictions under the National Recovery Plan could see an increasing chance for Bank Negara to cut the OPR by 25 basis points.

OCBC Wellian Wiranto

OCBC Wellian Wiranto

“In its previous MPC meeting, it could still project a sanguine outlook, because any lockdown had left business activities largely unfettered. With one tighter set of restrictions now being piled on top of already-tightened measures, that assumption is sadly looking less tenable by the day, ” he said.

Meanwhile, CGS-CIMB Research and MIDF Amanah Investment Bank expected the central bank to leave the OPR at 1.75% in the second half-year.

The central bank is expected to let its monetary policy remain loose as the economy operates below potential.

Source: https://www.thestar.com.my/business/business-news/2021/07/07/bank-negara-likely-to-keep-opr-unchanged