KUALA LUMPUR – JP Morgan expects Bank Negara Malaysia to keep the overnight policy rate (OPR) on hold at 1.75% following the newly announced relief measures.
In a note today, JP Morgan said the 125 basis points of cumulative cuts in 2020 would also be a contributing factor for BNM’s decision.
“While risks of a cut have increased, there are several reasons for the central bank to remain on hold. First, while the MCO could trim between 0.5 to 0.8 percentage points of 2021 gross domestic product growth, it is still short dated in nature as of writing and businesses and consumers are now arguably more adept at operating this new normal versus previous restrictions,” it opined.
Secondly, it said, the RM15 billion Malaysian Economic and Rakyat’s Protection Assistance Package (Permai) and measures in Budget 2021 are expected to support consumption.
“Both of these measures support our narrative that the overall economic trend remains one of an uneven path to recovery.
“Third, the transmission mechanism from additional policy rate cuts, and therefore the purpose of such cuts, is likely to be limited given the variety of credit relief measures and moratoria currently in place,” it added.
Meanwhile, UOB pencilled in a 25 basis points OPR cut to a new low of 1.50% in the first half of this year.
“However, the pressure to ease may be lesser with the latest assistance measures and government’s assessment that the economic impact from current MCO is more manageable,” the research house said in a note. – Bernama, January 19, 2021
