KUALA LUMPUR, Sept 9 — There is a possibility of another round of overnight policy rate (OPR) cut by 25 basis points before year-end in the forthcoming Bank Negara Malaysia (BNM)’s monetary policy review, according to some economists.
They said a fast-changing macroeconomic environment caused by the Covid-19 outbreak would encourage BNM to further intervene proactively.
Globally, most central banks are heading for a lower interest rate regime in order to buttress the macroeconomic stability for their economies.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid expects BNM to defer the OPR cut in the MPC meeting tomorrow as recent economic data such as vehicle sales, exports and Purchasing Managers’ Index (PMI) indices have been quite decent.
This indicates less urgency by BNM, he said, considering that the benchmark rate has been reduced by a total 125 basis points between January and July this year and it being already at an all-time low.
“Bank Negara has been proactive in supporting the economy via expansionary monetary policies.
“So this could be the main reason why markets expect an OPR cut to happen at the final Monetary Policy Committee (MPC) meeting in November 2020,” he told Bernama.
The central bank has reduced the OPR four times this year bringing it to 1.75 per cent, the lowest level recorded since 2004.
The MPC will meet tomorrow before holding the last meeting on November 3.
As to whether another OPR cut could be a factor of consideration by the MPC to help the majority of borrowers, Afzanizam was confident it could help the latter.
“However, we believe MPC members would also be looking at the big picture such as the transmission of monetary policy to the economy and how responsive businesses and households are towards the policy accommodation.
“There are also external factors such as the global economy, commodity prices and the geopolitical risks which would have a direct impact on how MPC members assessed the economy,” he said.
On whether the lower interest rate would continue to attract foreign capital flows, Afzanizam believes investors would do their own due diligence before deciding to invest.
“However, Malaysia can certainly still offer a better yield compared to say, the US, United Kingdom, European Union and Japan.
“Whether BNM will cut the OPR by another 25 basis points tomorrow, there is still plenty of room if we were to compare our rates with the US Federal Reserve Fund Rate which currently stands at 0.25 per cent,” he said.
As to economic growth, Afzanizam said the pace should be better than in the first half on the back of positive total industry volume for the automotive sector for the month of July which shot up to more than 57,000 units boosted by the National Economic Recovery Plan (Penjana) measures.
“In that sense, the fiscal stimulus has been very effective in stimulating the economy. This also may have an impact on BNM’s decision on OPR, that is, they may not want to excessively stimulate the economy,” he added.
Meanwhile, Juwai IQI chief economist Shan Saeed said BNM has played its card very intelligently in the market.
“To date, BNM has moved very cautiously in cutting rates which give room to manoeuvre for further cuts in the monetary space if required,” he said.
The central bank, Shan said, has used tactical moves by controlling price inflation with appreciating ringgit and prudent monetary tools to make an impact on the economy.
In terms of growth, he said economists expect the Malaysian economy to stabilise and aggregate demand to become steady by December 2020.
The economy has the potential to show resurgence by the end of the year with positive growth mode, Shan opined.
Banks such as Principal Asset Management Bhd (Principal) and HIS Markit expect a further interest rate cut by BNM by year-end.
However, Standard Chartered Bank (StanChart) is an exception, predicting that BNM will keep the OPR unchanged at 1.75 per cent at its MPC tomorrow as it waits to take stock and assess the need for further cuts. — Bernama
