Malaysian Rating Corp Bhd (MARC) expects Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate (OPR) at 1.75% before it normalises interest rates after mid-2022.
MARC believes BNM would raise the OPR earlier once unexpected monetary policy normalisation is undertaken by the US Federal Reserve as well as other regional banks, reported The Sun Daily.
This scenario will help prevent the ringgit from weakening and capital from flowing out, but post-COVID recovery may be incomplete.
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However, it noted that BNM’s recent MPS statement indicated no imminent changes to monetary policy.
“We hope the following MPS will provide more hints on how BNM would tackle interest-rate normalisation in the coming year. With that in mind, we project the Malaysian economy to experience a trough in Q3 2021, with GDP growth to come in at -3.7% year-on-year,” said MARC as quoted by The Sun Daily.
Meanwhile, MARC sees exports remaining in positive territory as the export sector registered double-digit growth of 18.4% year-on-year in August and 24.7% year-on-year in September.
“A rally in the prices of crude oil and crude palm oil (CPO) has lent some support to export growth. We expect a rebound in Q4 2021 following a relaxation in the mobility restrictions as vaccination rates are approaching the requirement to achieve herd immunity,” said MARC.
“We believe that the pent-up demand and sustained export growth will be the main growth drivers in Q4 2021 since all states, except Kelantan and Sarawak, are now in Phase 4 of the NRP.”
The ratings agency explained that the nationwide lockdown and concerns surrounding the COVID-19 pandemic has led to weaker domestic demand, offsetting robust export performance.
The lockdown’s impact on the economy is evident in the significant decline in recreation and retail footfalls, which stood at its lowest level since the first movement control order (MCO 1.0) was introduced in March to May last year, showed Google Mobility data.
With this, retail sales contracted by 8.1% year-on-year in July and 7.5% year-on-year in August.
MARC noted that the Manufacturing Purchasing Managers Index also stood below 50 throughout Q3 2021, implying a deterioration in the industrial sector’s conditions.
It warned that the supply chain disruptions, weaker-than-expected economic performance of the country’s largest trading partners and another waive of COVID-19 containment measures may pose downside risks to the growth outlook of Malaysia.
“We concur with BNM’s view that the underlying inflation will remain muted to average below 1.0% due to spare capacity in the near term,” said MARC.
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