MIDF: BNM’s OPR status quo in line with ‘temporary drag’ view on Malaysia’s economy

A view of the Kuala Lumpur city skyline in Malaysia February 7, 2018. — Reuters pic
A view of the Kuala Lumpur city skyline in Malaysia February 7, 2018. — Reuters pic

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KUALA LUMPUR, July 8 — MIDF Research said the decision by Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 1.75 per cent today “is in line with its expectation that the current tight restrictions imposed on the economy will be a temporary drag, particularly in the middle of the year.”

The research house said any reduction in the OPR will depend on the length of the lockdown because further extensions will adversely affect the strength of Malaysia’s economic growth.

“On the global front, while the recovery is ongoing, the challenge to contain the pandemic and increased financial market volatility remain key risks to growth,” it said in a research note today.

MIDF has maintained its view that BNM will keep the OPR at the current level for the rest of the year with the main focus on ensuring that the monetary policy stance continues to be supportive of Malaysia’s economic recovery.

“The ongoing lockdown is expected to affect growth temporarily as tighter restrictions have to be imposed to control the spread of the Covid-19 pandemic.

“At the moment, we (note) that the improvement in public health has been uneven; while several states have been placed in Phase Two of Movement Control under the National Recovery Plan, while EMCO (enhanced movement control order) has been enforced to contain the high infection rates in Selangor and Kuala Lumpur,” it added.

In the meantime, the research house expects economic activities to pick up later this year on additional fiscal support, vaccination rollout progress and eventually the easing of restrictions.

“Based on this expectation, including the anticipation for more moderate inflation in the coming months, we see less need for BNM to cut OPR. We expect BNM to keep OPR at 1.75 per cent throughout this year,” it said.

Meanwhile, in reacting to BNM’s latest rate decision, OCBC Bank economist Wellian Wiranto noted that the central bank has adopted “a wait-and-see approach for now, retaining a broadly sanguine outlook, predicated on external growth drivers.

“As much as we hope the situation will improve itself over the next few weeks, such that Malaysia can step into a recovery mode forcefully without any hiccup again, the reality is unlikely to be so straightforward.

“Hence, we continue to see the potential for BNM to do what it can to help growth along by easing its OPR by 25 basis points in the next Monetary Policy Committee (MPC) meeting,” he said. — Bernama

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