BANK NEGARA EXPECTED TO HOLD RATE
Present OPR of 1.75pc supportive of economy, says Bank Islam economist
BANK Negara Malaysia is not expected to review its key interest rate at its second Monetary Policy Committee (MPC) meeting this year on Thursday, said economists.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said there is no urgency for Bank Negara to cut the Overnight Policy Rate (OPR) for now.
“At this juncture, we do not see Bank Negara altering the OPR as the present rate has been supportive of the economy,” he told the New Straits Times yesterday.
Afzanizam said there is a chance that the central bank wants to add more to the level of policy accommodation.
“There are signs the economic recovery is gaining good traction, especially the external demand. March exports jumped more than 30 per cent and the shortage of microchips in the semiconductor industries will benefit Malaysian manufacturers.”
Malaysian Rating Corp Bhd senior economist and research head Firdaos Rosli concurred that Bank Negara will hold the rate steady.
“We view that Bank Negara will keep the rate at 1.75 per cent throughout the year to remain accommodative,” he told the NST.
If it were to make a revision, it would likely give some early signals to manage market expectations, he said.
“The possibilities, however, are remote at this point in time. Monetary policy is a blunt policy instrument. The ball is in the government’s court to stimulate the economy.”
OCBC Bank economist Wellian Wiranto said the MPC meeting will be held against the backdrop of a resurgence in Covid-19 cases.
“While we and the market do not expect the central bank to cut the OPR on balance (it held the rate during the previous virus resurgence in January), there remains a small tail risk that it may just do so. At the very least, it will start to flag some of the downside risks more vocally and signal that it continues to have some space for further accommodative policy if needed.”
HSBC Global Research Asean chief economist Joseph Incalcaterra does not expect Bank Negara to review its OPR on Thursday but sees the start of a gradual normalisation cycle by the end of 2022, at the earliest.
Incalcaterra said there is a high bar for further monetary policy accommodation despite downside risks to Bank Negara’s economic growth forecast.
“The central bank can count on manufacturing growth to provide support to the economy and employment, while the government has secured enough vaccine doses to enable the country to achieve some form of herd immunity by year end despite supply challenges,” he said in a report yesterday.
He said headline inflation is likely to continue rising this year due to base effects and higher energy prices.
“While Bank Negara can look through this volatility, it nonetheless reduces the likelihood of further easing as the real policy rate buffer evaporates.”
He said Bank Negara remains focused on elevated household debt growth, and could rely on still-expansionary fiscal policy to provide targeted support to the economy.