KUALA LUMPUR, March 3 — The prevailing macroeconomic situation due to the Covid-19 outbreak coupled with a slowdown in the domestic economy has led Bank Negara Malaysia (BNM) to cut its overnight policy rate (OPR) by another 25 basis points to 2.50 per cent today.
This was the second OPR cut by BNM this year in its effort to provide a more accommodative monetary environment to support a projected improvement in the economic growth amid price stability.
JP Morgan in its research note today said, the ongoing Covid-19 has disrupted production and travel activity within the region; leading to a greater risk aversion, resulting in tighter financial conditions and a resurgence in financial market volatility.
“Downside risks to the global growth outlook have increased, particularly in the near term. However, a number of countries have implemented policy responses. With further anticipated policy measures, these actions are expected to mitigate the economic impact of Covid-19,” it said in a research note.
While noting that the recently announced RM20 billion Covid-19 economic stimulus package announced last week could provide some boost for the domestic economy, downside risks to growth continue to linger as it is expected to impact commodity-related sectors.
“Thus, today’s monetary policy action, which is in line with our expectation, serves to provide a more accommodative environment to support Malaysia’s growth recovery this year”.
Bank Negara also noted that private consumption that has been the primary driver of Malaysia’s growth, could slow this year, amid moderate employment and income growth.
Indeed, even with a reduction in the Employee Provident Fund (EPF) contributions as part of the fiscal measures announced last week, lingering uncertainties in the economy may imply that households are likely to save rather than spend these funds.
Taking note of the recent fiscal policy steps up, JP Morgan viewed further monetary policy support for the domestic economy could be expected in the near term.
“While the cabinet officials have yet to be announced following the appointment of (Tan Sri) Muhyiddin Yassin as Malaysia’s 8th prime minister over the weekend, there seems to be a clearer path that includes a more supportive fiscal policy.
“At this point, however, we maintain our expectations for further policy easing in the second quarter this year while noting that should fiscal policy step up materially, there would be less urgency for monetary accommodation by the central bank,” it said.
Looking ahead, the research house predicted the economy to grow at a moderate pace of 4.3 per cent, mainly dragged by the virus outbreak, which would slow down tourism-related and manufacturing sectors.
For 2020, private and public sector activities will be supportive of growth while household spending is expected to grow at a slower pace amid moderate employment and income growth.
Investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors.
Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believed there is always a possibility of additional OPR.
“However, this will be contingent upon the evolving economic outlook. As we know, the Covid-19 presents a shock to the global value chain. Therefore, additional monetary easing could help the economy to withstand the impact,” he said. — Bernama
