KUALA LUMPUR – Bank Negara Malaysia (BNM) is expected to maintain the 1.75% overnight policy rate (OPR) until year-end, following the Monetary Policy Committee (MPC) meeting yesterday that stayed the figure, said analysts.
CGS-CIMB Securities said the central bank kept the benchmark rate unchanged for the sixth straight meeting, in line with its expectations alongside 19 of 21 economists surveyed by Bloomberg.
“We are retaining our end-2021 OPR forecast at 1.75%, expecting BNM to hold the policy rate at the remaining two MPC meetings in September and November,” said the stockbroking firm in a research note.
It said the decision to hold the OPR despite greater uncertainties surrounding the gross domestic product growth outlook suggests that any impetus to cut the rate needs to be accompanied by a more significant and protracted deterioration in economic fundamentals.
“That said, the factors delaying the relaxation of containment measures or triggering a further reduction in operating capacity, without the corresponding remedial measures from the government or government-linked companies, could trigger a change in monetary policy stance.”
Kenanga Investment Bank Bhd said BNM is forecast to hold the rate steady in 2021, but the probability of a reduction will rise if tighter containment measures are prolonged.
“The BNM monetary policy mode is still adjusting to the transition towards a neutral stance from being dovish, as it sees improvement in global growth recovery along with the rise in commodity prices and headline inflation.
“Overall, the tone of the (policy) statement has not changed that much from the previous MPC meeting.”
It said the lender could consider taking the rate-cut route as the fiscal space is increasingly limited, debt headroom to raise funds to finance the deficit is shrinking, and measures to support small and medium enterprises may be limited or ineffective.
“But the probability of that happening remains considerably low for now. Barring a major risk to the financial market and economy due to negative spillovers from the pandemic, we reckon BNM will save its bullets and continue to let fiscal policy take the lead.”
Meanwhile, Maybank Investment Bank Bhd said BNM is sticking to its call of no OPR changes for the rest of the year and well into 2022.
“Expect a 25-basis-point OPR hike only in the fourth quarter of 2022.
“Passive easing” via “real” OPR has materialised, it said, adding that real OPR turned negative in April on the return of inflation.
It said BNM has actively been using other policy tools since last year for more direct intervention and immediate effects in addressing the economic impact of Covid-19.
Echoing this sentiment, AmBank Investment Bank Bhd said the current interest rate is sufficient to accommodate the economy, and any further reduction is unlikely to help stimulate it.
The OPR is poised to stay unchanged throughout the year, it said.
“Any decision to change the rate will be influenced by new data and information, and the implications for the overall outlook on inflation and domestic growth.” – Bernama, July 9, 2021
