Some economists believe Bank Negara Malaysia (BNM) may cut the overnight policy rate (OPR) by 25 basis points before end-2020, as the fast-changing macroeconomic environment could encourage central bank to further intervene proactively.
“Bank Negara has been proactive in supporting the economy via expansionary monetary policies,” Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Islam Malaysia Bhd told Bernama.
“So this could be the main reason why markets expect an OPR cut to happen at the final Monetary Policy Committee (MPC) meeting in November 2020.”
For this year, the OPR has been slashed four times by BNM, taking it to 1.75% or its lowest level since 2004.
Afzanizam expects the central bank to wait until November to cut the OPR since recent economic data like exports, vehicle sales and Purchasing Managers’ Index (PMI) indices have been decent.
On whether another OPR cut may be a factor in MPC’s consideration of helping majority of borrowers, Afzanizam said it could help the latter.
“However, we believe MPC members would also be looking at the big picture such as the transmission of monetary policy to the economy and how responsive businesses and households are towards the policy accommodation,” he said.
“There are also external factors such as the global economy, commodity prices and the geopolitical risks which would have a direct impact on how MPC members assessed the economy.”
On whether the lower interest rate could help attract foreign capital flows, Afzanizam expects investors to do their own due diligence prior to investing.
“However, Malaysia can certainly still offer a better yield compared to say, the US, United Kingdom, European Union and Japan,” he said.
And should BNM decide to slash the OPR today, he noted that “there is still plenty of room if we were to compare our rates with the US Federal Reserve Fund Rate which currently stands at 0.25%”.
Juwai IQI Chief Economist Shan Saeed stated that BNM had played its card very intelligently.
“To date, BNM has moved very cautiously in cutting rates which give room to manoeuvre for further cuts in the monetary space if required,” he said as quoted by Bernama.
Shan said the central bank has utilised tactical moves by controlling price inflation with prudent monetary tools and appreciating ringgit to make an impact on the economy.
In fact, he believes that the economy has the potential to show resurgence by year-end with positive growth mode.
Other banks that expect BNM to cut interest rate by year-end include Principal Asset Management Bhd (Principal) and HIS Markit.
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