OPR likely to be kept at 1.75pc at upcoming Monetary Policy Committee meeting, say economists

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. — Picture by Ahmad Zamzahuri
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. — Picture by Ahmad Zamzahuri

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KUALA LUMPUR, March 1 — Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) of 1.75 per cent at the year’s second Monetary Policy Committee (MPC) meeting on March 4, amid expectations of an economic recovery, said economists.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said that high-frequency data such as exports and the Consumer Price Index (CPI) indicate that the economy is recovering.

Malaysia’s trade surplus soared by 38 per cent year-on-year (y-o-y) to RM16.6 billion in January 2021, while total trade widened by 4.1 per cent y-o-y to RM162.6 billion.

The country’s total exports continued its positive momentum for the fifth consecutive month, expanding 6.6 per cent y-o-y to RM89.6 billion in January, while imports continued to record an increase of 1.3 per cent to RM73 billion.

“The bond market also suggests that rates would be higher going forward, with yields on benchmark securities having risen quite substantially.

“Nevertheless, we believe that the option for BNM to cut the OPR is still open,” he said to Bernama, noting that the country’s economic recovery is still tentative as the vaccination programme is in its early stages.

Malaysia’s January headline inflation came in better than expected, dipping 0.2 per cent to 122.1 from 122.4 a year earlier, he said, adding that the current rates are supportive of the economy and any decision with regards to the OPR would obviously be based on the incoming data.

Concurring with him, Axi chief global market strategist Stephen Innes said BNM is looking through the movement control order (MCO) and Covid-19 wave to a second quarter (Q2) recovery, and Axi thinks the easing cycle is over.

“I think the next move for global central banks, including BNM, will be a rate hike, although that will be well into 2023.

“In the meantime, BNM is still holding from cutting rates until it sees how the economy performs as the vaccine rolls out and mobility opens up more economic recovery,” he told Bernama.

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.

Innes said when mobility opens up, the economy tends to recover well on its own; but if it doesn’t respond on its own, then BNM still has the option to cut rates in early 2022.

“But I think that is very unlikely as export and commodity recovery will carry the economy as the domestic economy recovers,” Innes added.

Laurence Todd, Institute for Democracy and Economic Affairs (Ideas) research director, also expects the OPR to remain unchanged.

He said it is too soon to increase the rate, although there are reasons to be more hopeful for the economy in 2021.

“The prospects for 2021 are certainly better than 2020, with the vaccine rollout. However, there are still risks. Although some countries have made rapid progress with the vaccine, in some countries it is happening more slowly, and there is a potential for further disruption and resurgences.

“Moreover, even with successful vaccine rollouts, some restrictions are only likely to be lifted after several months, such as international travel,” he said.

Therefore, Todd said some parts of the economy will only be able to begin their recovery later in the year.

UOB Malaysia senior economist Julia Goh said the bank thinks BNM is less inclined to use broad and blunt monetary policy tools at this stage, despite weakness in Gross Domestic Product and extension of MCO 2.0.

“Hence, we expect BNM to keep the OPR unchanged at 1.75 per cent at the coming monetary policy meeting,” she said. — Bernama

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