Bank Negara expected to hold key rate at 1.75pc until year-end, say analysts

The logo of Bank Negara Malaysia is seen at its headquarters in Kuala Lumpur March 12, 2019. — Picture by Yusof Mat Isa
The logo of Bank Negara Malaysia is seen at its headquarters in Kuala Lumpur March 12, 2019. — Picture by Yusof Mat Isa

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KUALA LUMPUR, July 9 — Bank Negara Malaysia (BNM) is anticipated to maintain the current Overnight Policy Rate (OPR) of 1.75 per cent until year-end after the Monetary Policy Committee (MPC) meeting yesterday stayed put on the rate, analysts said.

 CGS-CIMB Securities said the central bank kept the benchmark rate unchanged for the sixth straight meeting, in line with its expectation alongside 19 of 21 economists surveyed by Bloomberg. 

“We retain our end-2021 OPR forecast at 1.75 per cent, expecting BNM to hold the policy rate during the remaining two MPC meetings in September and November 2021,” the stockbroking firm said in a research note.

According to CGS-CIMB, the decision to hold the OPR despite greater uncertainties surrounding Gross Domestic Product growth outlook suggests that any impetus to cut the rate needs to be accompanied by more significant and protracted deterioration in economic fundamentals.

“That said, factors delaying the relaxation of containment measures or triggering a further reduction in operating capacity, without corresponding remedial measures from the government or government-linked companies, could trigger a change in monetary policy stance,” it added.

Kenanga Investment Bank Bhd said BNM was expected to hold the policy rate steady in 2021 but the probability of a reduction would rise if tighter containment measures prolonged.

“BNM monetary policy mode is still adjusting to the transition towards a neutral stance from being dovish, as it sees improvement in the global growth recovery along with the rise in commodity prices and headline inflation.

“Overall, the tone of the (policy) statement has not changed that much from the previous MPC meeting,” the bank said in a research note today.

Kenanga said BNM might consider taking the rate cut route as the fiscal space was increasingly limited and debt headroom to raise funds to finance the deficit was shrinking, as well as measures to support the small and medium enterprises could be limited or ineffective.

“But the probability of that happening remains considerably low for now. Barring a major risk to the financial market and the economy due to the negative spillover from the pandemic, we reckon BNM would save its bullets and continue to let fiscal policy take the lead,” it said.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said the bank was sticking to its call of no OPR change for the rest of this year and well into next year.

“Expect a 25-basis point OPR hike only in the fourth quarter of 2022,” it forecast in a research note.

“Passive easing” via ‘real’ OPR had materialised, it said, adding that real OPR turned negative since April 2021 on the return of inflation.

According to Maybank IB, BNM actively uses other policy tools since last year for more direct intervention and immediate effect in addressing the economic impact of Covid-19 pandemic.

Echoing the sentiment, AmBank Investment Bank Bhd said the current interest rate was sufficient to accommodate the economy and any further reduction in interest rates was unlikely to help stimulate the economy.

The OPR was poised to stay unchanged throughout the year, it said in a note.

“Any decision to change the OPR will be influenced by new data and information, and the implications on the overall outlook for inflation and domestic growth,” it added. — Bernama


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