Economists expect Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) unchanged at 1.75% in the second Monetary Policy Committee meeting for this year, which will be held on 4 March, amid expectations of an economic recovery.
According to Dr Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd, high frequency data like exports and the Consumer Price Index showed that Malaysia’s economy is recovering, reported Bernama.
The country’s trade surplus surged 38% year-on-year to RM16.6 billion in January and total trade expanded 4.1% year-on-year to RM162.6 billion.
Should You Buy A Property When The OPR Is Cut? Find Out Here.
Total exports also continued its positive momentum for the fifth successive month, growing 6.6% year-on-year to RM89.6 billion in January. Imports also posted a 1.3% increase to RM73 billion.
“The bond market also suggests that rates would be higher going forward, with yields on benchmark securities having risen quite substantially,” he said.
“Nevertheless, we believe that the option for BNM to cut the OPR is still open.”
He noted that Malaysia’s economic recovery remains tentative since the vaccination programme is still in its early stages.
The country’s headline inflation for January was better than expected, sliding 0.2% from 122.4 a year earlier to 122.1. He believes the current rates are supportive of the economy, hence, any decision involving the OPR would be based on the incoming data.
Broker group Axi chief global market strategist Stephen Innes concurs, adding that the easing cycle is over.
“I think the next move for global central banks, including BNM, will be a rate hike, although that will be well into 2023,” he said as quoted by Bernama.
“In the meantime, BNM is still holding from cutting rates until it sees how the economy performs as the vaccine rolls out and mobility opens up more economic recovery.”
BNM slashed the OPR at 1.75% in July 2020 – a record low since 2004 when the floor was set. Since then, the central bank has maintained the rate.
Innes believes the economy will recover on its own when mobility opens up. However, if it does not respond on its own, BNM has the option to lower rates early next year.
“But I think that is very unlikely as export and commodity recovery will carry the economy as the domestic economy recovers,” added Innes.
Laurence Todd, research director at Institute for Democracy and Economic Affairs also sees BNM maintaining the OPR at 1.75%.
He noted that while it is too soon to raise the rate, there are reasons to be more hopeful this year.
“The prospects for 2021 are certainly better than 2020, with the vaccine roll-out. However, there are still risks. Although some countries have made rapid progress with the vaccine, in some countries it is happening slowly, and there is a potential for further disruption and resurgences,” he said as quoted by Bernama.
Julia Goh, senior economist at UOB Malaysia, does not expect BNM to use broad and blunt monetary policy tools, despite the extension of the MCO and the weakness in gross domestic product.
“Hence, we expect BNM to keep the OPR unchanged at 1.75% at the coming monetary policy meeting,” she said as quoted by Bernama.
Image source from BNM
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