Will Bank Negara stay pat on key interest rate at Thursday policy meeting?

KUALA LUMPUR: Some economists expect Bank Negara Malaysia to maintain its overnight policy rate (OPR) at its Monetary Policy Meeting (MPC) on Thursday.

They believe the central bank would stay pat on its key interest rate after delivering a cumulative 125 basis points (bps) of cuts at the last four MPC meetings.

The cuts have taken the OPR to 1.75 per cent at present, below the low of two per cent set during the global financial crisis in 2009.

Standard Chartered Bank Asean and South Asia chief economist Edward Lee and Asia economist Jonathan Koh expect Bank Negara to pause and take stock as global economies, including Malaysia, were reopening and higher-frequency data showed a clear pick-up in activity.

Besides that, they said economic data projections had remained uncertain due to lockdown disruptions and Bank Negara had already cut rates to a historical low.

They also said that with some pandemic restrictions still in place, further rate cuts might have only a limited marginal impact and reduced future policy space.

“We believe the central bank has room to adopt a wait-and-see stance. If a recurrence of infections threatens the recent recovery in activity (global or local) or if the implementation of fiscal measures is weak, Bank Negara could cut policy rates further,” they said.

Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff expects Bank Negara to opt for the OPR to remain at 1.75 per cent,

This is given that several economic indicators had shown some positive figures, particularly on increased exports and higher number of loan applications made by individuals and businesses.

“This means that business confidence is on the rise and banks are getting confident to start lending again,” he told the New Straits Times today.

Ahmed Razman, however, said Bank Negara can afford to keep reducing its OPR to 1.50 per cent since inflation rate was still low.

“But I think they will only do that if the economy need further assistance from Bank Negara, which I think not at the moment.

“There is a possibility the OPR will get lower if we suffer from the second wave of pandemic or global recession affected the demand for our products and services but with the introduction of potential vaccine for the next few months including achievements by many countries in controlling the pandemic.

“I foresee that Malaysian economic will continue its recovery towards the end of the year and next year as well,” he said.

Meanwhile, Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said Bank Negara would likely cut the OPR by 25bps as the economic uncertainty remained elevated.

He said besides that, lower inflation rate environment provided the space for Bank Negara to do so.

“The uncertainty stems from the Covid-19 vaccine which has yet to be found, but the efforts have been forthcoming. Until the vaccine is found, the downside remains clearly visible,” he said.

AmBank Research head and chief economist Dr Anthony Dass also expects another 25bps cut.

He said while some of the macro data were showings bottoming out signs, downside risk remained and uncertainties on the Covid-19 pandemic remained high.

“The fear of second wave kicking in and its severity is still unclear. Domestic challenges remains, especially with concerns of more to be retrenched once the wage subsidy ends. Ending of the moratorium would shed more light on the state of business and corporate health besides households.

“Hence, a reduction under the current low inflation environment would provide positive impetus to spending and help soften to some degree from any rising pressure on NPLs (non-performing loans). Equities market could also benefit from retail buyings,” Dass added.

Source: NST