KUALA LUMPUR, July 7 — The Covid-19 pandemic resurgence has weighed on the central bank’s decision to lower the overnight policy rate (OPR) today as it casts a dark cloud over the global economic outlook for the second half (H2) of this year.
OCBC Bank economist Wellian Wiranto said while Bank Negara Malaysia (BNM) appeared to be heartened by the recovery in economic activities since early May, it repeatedly highlighted the continued spectre of downside risks.
“It pointed out the risk of a pandemic resurgence that might bring about the reintroduction of containment measures,” he said.
He said given the resolute dovishness and newly uncertain outlook in the second half due to virus resurgence fears, the bar for another cut later this year has gotten lower than before.
“(The OPR cut to) 1.75 per cent may not be the lowest for long, since September may invite another cut, especially if global conditions suffer a relapse,” he said.
Wiranto said coming at a time when global markets are increasingly contending with the prospect of more lockdowns — with news about Melbourne imposing a six-week lockdown, BNM’s warning would appear to be all the more ominous.
“Indeed, the same mixed feeling where hopefulness about near-term recovery is heavily tinged with caution about the potential for more shutdowns due to pandemic resurgence is evident when the Monetary Policy Committee’s (MPC) statement discusses Malaysia’s domestic conditions as well,” he said.
Wiranto said the current economic backdrop has led the central bank to cut the rates today to 1.75 per cent, the lowest since the floor was set in 2004, is a testament of just how unprecedented the current situation has been.
“Perhaps two months from now, the renewed anxiety about the virus would prove to be unfounded and BNM may be comfortable holding the rates again,” he said.
The central bank, at 3pm today, announced the OPR reduction and said that the move would provide additional policy stimulus to accelerate the pace of economic recovery.
“The MPC will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth. The bank will continue to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery,” BNM said. — Bernama
