KUALA LUMPUR, May 6 — MIDF Research maintained its view that Bank Negara Malaysia (BNM) will not make any changes to the overnight policy rate (OPR), which stood at 1.75 per cent, as the current rate remains accommodative to support Malaysia’s economic recovery.

In a research note today, the brokerage viewed the targeted containment measures in several areas including Selangor and Kuala Lumpur to be a temporary downside risk amid the recent rise in Covid-19 cases.

“At the moment, we do not foresee any need for further easing in the monetary policy but BNM has room to cut OPR should the economic condition deteriorate significantly.

“With the economy remaining on a recovery, based on the recent economic indicators, we expect OPR to be kept at 1.75 per cent until the end of the year,” it added.

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MIDF Research said BNM’s decision to maintain OPR at the current level was to ensure economic recovery to be more entrenched amid concern of any potential downside risks from the ongoing Covid-19 pandemic on Malaysia’s economic outlook.

According to BNM, based on the latest economic data, there has been improvement in economic activities in first quarter of 2021 and going into April 2021.

“Looking at the latest indicators, we also conclude that the growth performance has been better than expected as both exports and industrial production managed to sustain positive growth despite the imposition of MCO 2.0 in the early part of 2021,” said MIDF Research.

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BNM added that the Covid-19 vaccination progress will play an important part to boost sentiment and support economic recovery while stronger growth in the external demand and rising domestic spending, both by the public and private sectors, will support Malaysia’s growth outlook.

Meanwhile, RHB Investment Bank Bhd believed that BNM would remain focused on the recovery path in the second half of 2021.

“In our view, the central bank is looking at the improvements in economic activity in the United States and extrapolating that this channel will lift Malaysia’s external sector and will be followed by income effects filtering through the domestic economy,” it added.

RHB Investment Bank noted that the government has enough room to invoke further counter-cyclical fiscal measures.

“Our analysis of the progress of fiscal measures such as the wage subsidy programme and hiring incentive programme has shown that the disbursements have been much less relative to the allocation.

“Given the unutilised funds, the government may have room to implement further counter-cyclical fiscal measures to support consumer spending and the small and medium enterprises,” said the investment bank.

In a worst-case scenario, RHB Investment Bank said the recent government access into the National Trust Fund (KWAN) could provide it with some fiscal space if the worst eventuality ever comes.

KWAN’s total fund amounts to RM19.5 billion, of which RM5 billion has already been tapped for vaccination programmes. — Bernama