Several research bodies said another cut in the Overnight Policy Rate (OPR) could happen this year, following Bank Negara Malaysia’s (BNM) move last week to lower the rate by 25 basis points (bps).
BNM reduced the rate from 3.0% to 2.75% as a pre-emptive move to secure improving growth trajectory in the middle of price stability.
Kenanga Investment Bank Bhd (Kenanga Research) believes the central bank will lean towards an additional rate cut this 2020, due to uncertainty in the domestic and global economy, reported The Borneo Post.
“For the time being, BNM has signalled a pause, stating that ‘at this current level of the OPR, the Monetary Policy Committee (MPC) considers the stance of monetary policy to be appropriate in sustaining economic growth with price stability,” it noted.
“However, we suspect the growing concerns of the spread of Coronavirus might have partly influenced and hastened BNM’s decision to cut this round.”
PublicInvest Research agreed with Kenanga Research and said another rate cut could occur in the second half of 2020, as BNM might want to examine the effect of its two previous monetary interventions, which were the OPR and the statutory reserve requirement.
“This may be more compelling if the growth trajectory slipped below the four per cent range. On balance, our baseline forecast is for the Malaysian economy to remain on a stable growth path, projected to rebound mildly to 4.8% in 2020 (2019 estimate: 4.7%), consistent with the expectation of the Ministry of Finance,” it noted.
OCBC Bank’s Treasury Research had a more conservative view and said even with the recent 25 basis points (bps) rate reduction, it may still be difficult to achieve the official growth assumption especially if global trade flows become affected by the Wuhan virus scare or breakdown in the China-US trade truce.
“We had highlighted before that the 4.8% rate in 2020 that underpins the fiscal assumption was too optimistic, and we reckon growth is likely to be closer to 4.2% that we expect,” it said.
“Hence, this is unlikely to be BNM’s last action of the year. We continue to see the possibility of an aggregate of 50 bps rate cuts this year. That is to say, one more rate cut is to be expected after Wednesday’s move.”
Researchers at Affin Hwang Investment Bank Bhd (AffinHwang Capital) had a novel take on BNM’s recent OPR cut, believing that the move may have been partially brought about by the recent coronavirus (2019-nCoV) outbreak.
“This may be a pre-emptive measure in order to contain its implications on economic activity, especially in the tourism and retail sectors,” they said.
“Therefore, unless the coronavirus outbreak worsens, we anticipate BNM to keep its OPR unchanged throughout 2020 as it guided that the current OPR level of 2.75% is appropriate in sustaining economic growth with price stability.”