BNM likely to retain OPR until year-end
KUCHING: Bank Negara Malaysia (BNM) will likely retain the overnight policy rate (OPR) at 1.75 per cent despite the downside risk to Malaysia’s growth outlook, analysts say.
On Thursday, BNM explained that financial conditions remain supportive of growth but the overall balance of risks to the growth outlook remains tilted to the downside, due mainly to uncertainty over the path of the pandemic as well as potential risks of heightened financial market volatility.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) opined: “We still believe that BNM monetary policy mode is still adjusting to the transition towards a neutral stance from being dovish, as it sees improvement in the global growth recovery along with the rise in commodity prices and headline inflation.”
It noted that it is concerned that the market might also think that doesn’t mean BNM would not change its mind if the pandemic situation worsens as the government may not be able to control the persistent surge in the number of cases, or fall short of achieving the vaccination target.
“Hence, the government may be forced to further extend and prolong the strict Enhanced Movement Control Order period, bringing about a detrimental effect on livelihood and the economy.
“As the fiscal space is increasingly limited and debt headroom to raise funds to finance the deficit, is shrinking as well as measures to support the SMEs could be limited or ineffective, BNM may consider taking the rate cut route.
“But the probability of that happening remains considerably low for now,” the research team added.
Barring a major risk to the financial market and the economy due to the negative spillover from the pandemic, Kenanga Research reckoned that BNM would save its bullets and continue to let fiscal policy take the lead.
As such, it maintained its view that the OPR could remain at 1.75 per cent for the rest of the year.
Meanwhile, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) believe that while BNM has room to cut the OPR, any reduction of the OPR will depend on the length of the lockdown because a further extension to the current lockdown will adversely affect the strength of Malaysia’s economic growth.
“At the moment, we view the improvement in the public health has been uneven; while several states have been placed into the second phase of the National Recovery Plan, EMCO has been put in place to contain the high infections in Selangor and Kuala Lumpur.
“Going forward, with additional fiscal support, the progress in vaccination and eventually the relaxation of restrictions on the economy, we expect activities will pick up later this year.
“Based on this expectation, including the anticipation for a more moderate inflation in the coming months, we see less need for BNM to cut OPR. We expect BNM to keep OPR at 1.75 per cent throughout this year,” it said.