Possible rate cut by 25bps in March or 2Q21 cannot be ruled out — AmBank Research

KUALA LUMPUR (Jan 21): AmBank Group Research said that a possible rate cut by 25 basis points (bps) in March or 2Q21 cannot be ruled out.

In a note today, AmBank chief economist and head of research Dr Anthony Dass said this after Bank Negara Malaysia (BNM) decided to leave the overnight policy rate (OPR) unchanged at 1.75%.

“This can happen should the downside risk accelerates on the global front and/or domestic driven by the Covid cases, roll-out and effectiveness of the vaccine, and the impact from the stimulus measures,”he said.

Dass said that as expected, in the Monetary Policy Commitee (MPC) meeting, BNM extended the 2% statutory reserve requirement (SRR) flexibility which ends on May 31, 2021 to Dec 31, 2022.

“Extension of SRR measure is part of BNM’s continuous efforts to ensure sufficient liquidity to support financial intermediation activity.

“The banking institution can substitute MGS and MGII papers to meet the SRR compliance,” he said.

Dass said the latest MPC tone is seen as “neutral”.

“While downside risk remains, the economy in 2021 is still expected to perform better than 2020 even after taking into account of MCO 2.0 and the state of emergency.

“Besides improving global trade and gross domestic product in 2021, a more refined MCO 2.0 and the state of emergency to address the pandemic virus spread, roll out the vaccine plus the stimulus measures would provide the growth impetus.

“On that note, BNM would be on the sideline focusing on data to decide the next course of action.

“Our base case suggests OPR remains at 1.75% throughout 2021, while still maintaining a 20%-30% probability for a rate cut by 25bps in March or 2Q21,” he said.

Source: TheEdgeMarkets