KUALA LUMPUR, Sept 2 — OCBC Bank sees the need to cut interest rate by 25 basis points (bps) on Sep 9, 2021, despite previous decisions to hold.
In a research note today, the bank’s economist Wellian Wiranto said OCBC Bank is of the view that further monetary policy accommodation is helpful to smoothen the path towards recovery in the fourth quarter (Q4) of 2021 and into 2022.
“For one, the economic momentum in recent months has continued to be sub-par due to the prolonged movement restriction orders.
“Indeed, Q3 is likely to post another sequential gross domestic product (GDP) contraction, following the two per cent contraction in Q2, and this presents a spectre of technical recession for the Malaysian economy,” he said, adding that in July 2021, Bank Negara Malaysia kept its overnight policy rate (OPR) unchanged at 1.75 per cent.
Wiranto said even though new Covid-19 cases continue to linger at around 20,000 per day, the silver lining is that the long-suffering Klang Valley area appears to have started to turn the corner.
However, other areas such as Johor and East Malaysia risk becoming the new epicentres, said Wiranto, adding that the death rate continues to remain high, presenting a grim reminder that the fight against the delta variant is an arduous marathon, not a sprint.
“While the overall inoculation rate nationwide enjoyed a big boost in recent months, such that more than 45 per cent of Malaysians are now fully inoculated, it remained some distance away from the projected 80-90 per cent that might be deemed safe for a full economic reopening.
“Besides, the rate of inoculation appears to have flagged in recent weeks at a national level and without a renewed push under the new cabinet, this would present a risk to the reopening hope,” he said.
On top of that, the economist said the resumption of an uptick in the unemployment rate further complicates any expectation of a quick return of Malaysian shoppers.
“This may be especially so given that the labour market outlook may not improve markedly soon,” said Wiranto, citing the findings of the Federation of Malaysian Manufacturers (FMM) and the Malaysian Institute of Economic Research (MIER) Business Conditions Survey 1H2021 released on Sept 1, 2021.
According to the poll, only 12 per cent of manufacturers are expected to increase their headcount in the coming months, compared with 25 per cent that intends to reduce employment.
Meanwhile, Wiranto said that another factor that could curb consumption would be the level of indebtedness.
“Before the pandemic, Malaysia’s household debt was already ranked as one of the highest in the region as a proportion of its economy.
“That ratio ballooned to over 93 per cent in 2020,” he said.
Therefore, the need for further monetary policy help comes at a time when fiscal space is crimped, Wiranto added.
He said the budget balance in 2021 may reach as low as -7 per cent of GDP, the widest gap since 2009.
“Together with lower-than-expected GDP growth, it would push the statutory debt-to-GDP ratio to above 60 per cent by the end of the year.
“While the new government may push for a higher ratio of, say, 65 per cent of GDP, it may not offer that much more headroom, even as we expect a still-expansionary 2022 budget,” Wiranto said. — Bernama
