Less need for BNM to cut overnight policy rate: CGS-CIMB

KUALA LUMPUR – CGS-CIMB Securities Sdn Bhd foresees less need for a heavy-handed approach by Bank Negara Malaysia to cut the overnight policy rate currently due to the availability of non-monetary support such as the Permai assistance package.

In a research note today, the brokerage firm said the estimated daily loss during the second movement control order is significantly less severe than the RM2.4 billion incurred from March to May 2020, which saw the central bank cut the OPR aggressively by 125 basis points between January and July 2020.

However, it said the Malaysian economy might have to continue operating under MCO restrictions for a protracted period reinforced by comments from Health director-general Tan Sri Dr Noor Hisham Abdullah that the daily infection rates could reach 8,000 by the third week of March.

CGS-CIMB Securities said it has adjusted its end-2021 OPR forecast to 1.5% as it foresaw BNM reducing the OPR by another 25 basis points in the first half of this year.

“Should the growth outlook continue to falter, BNM may be pressed into easing the monetary policy again,” it said.

Axi chief global market strategist Stephen Innes said it is unlikely that BNM would cut OPR when other central banks were now discussing when to pull back on accommodation.

“BNM views the effect of the first quarter lockdown as much less severe than the first MCO as business and consumers have better adapted to the lockdown situations,” he said.

He said the Covid-19 vaccine would be a game-changer for economic recovery and the optimistic view was that the broader restriction and wider reopening would occur before the so-called “spring break” when the curve is flattened and those most at risk are vaccinated.

UOB Malaysia senior economist Julia Goh said BNM was in “wait-and-see” mode and expected a high chance that the current MCO 2.0 could be extended.

“Given the possibility of further extension of the current containment measures and potential downside risks, we maintain our view for a 25-basis-point OPR cut to a new low of 1.5%  in the first quarter of 2021,” Goh added.

The central bank has maintained the OPR at 1.75% following the monetary policy committee meeting today as it sees continued recovery in the global economy, although downside risks remain amid uncertainties surrounding the pandemic.

BNM also maintained its statutory reserve requirement ratio at 2%. – Bernama, January 20, 2021