BNM is likely to keep the OPR unchanged in 2021
KUALA LUMPUR: Bank Negara Malaysia (BNM) will likely leave its interest rate in the upcoming Monetary Policy Meeting (MPC) tomorrow, says HSBC Global Research.
The estimation is supported by the recent fall in Covid-19 cases, the gradual easing of restrictions, the earlier-than-expected start to the vaccine drive, upbeat data, and the government’s pledge for targeted support.
“Accordingly, our base case is now for the Overnight Policy Rate (OPR) to remain unchanged at 1.75 per cent this year.
“Nevertheless, we believe that the decision on 4 March will be a close call, with a non-negligible chance of easing given the sharp hit to 2021 growth owing to the lockdown measures.
“Moreover, should conditions unexpectedly and meaningfully deteriorate, the BNM remains one of the few central banks in the region that could easily provide more monetary policy support,” chief economist for ASEAN Joseph Incalcaterra said in a note today.
HSBC Global Research noted that its new forecast falls below the government’s and BNM latest 6.5-7.5 per cent range, which the authorities are likely to adjust soon.
The firm said based on the government’s relatively sanguine view on the latest Movement Control Order (MCO) measures – which it estimates are resulting in losses of RM300 million a day versus RM2.4 billion last year, the revision may be small.
Moreover, the authorities have repeatedly flagged upbeat developments from the manufacturing sector – exports and intellectual property (IP) continue to pick up, driven largely by the country’s electronics sector.
“We share this upbeat view. Malaysia has built new capacity in the semiconductor industry in recent years and appears to have a significant share of global automotive chip capacity.
“Meanwhile, higher commodity prices, in particular gas and palm oil, are a boon for Malaysia, with loan growth accelerating to 3.8 per cent in January from 3.4 per cent in December,” Joseph said in the report.
Furthermore, higher oil & gas prices will provide Malaysia with some flexibility for further fiscal support, the firm noted.
The government has already repurposed 2021 expenditure to address the latest lockdown measures, and the finance minister pledged ‘more targeted aid to the needy’ and ‘more support for businesses’.
“The government may be able to boost expenditure marginally by adjusting higher its 2020 crude oil assumption of US$45-55 per barrel, coupled with higher-than-expected corporate tax revenue in recent months,” he said.
“By simply adjusting our first quarter gross domestic product (GDP) forecast to account for a sharp contraction in private consumption, we recently revised down our 2021 GDP forecast for Malaysia from 6.7 per cent to 5.2 per cent,” he said.
Source: NST