KUALA LUMPUR (April 23): CGS-CIMB Securities Sdn Bhd said today it expects Bank Negara Malaysia (BNM) to cut the overnight policy rate (OPR) by another 75 basis points (bps) in anticipation of a contraction in the country’s economy in 2020 and subdued inflation during the year.

CGS-CIMB economists Michelle Chia and Lim Yee Ping wrote in a note that the nation’s monetary policy is likely to become more accommodative and CGS-CIMB expects BNM to reduce the OPR by 50bps this May, followed by a further 25bps cut in the second half of 2020.

"We expect the sharp projected GDP contraction in 2020F (CGS-CIMB: - 4.3%) to keep Malaysia’s economy below potential for the next 12-18 months, resulting in an extended period of subdued inflation (CGS-CIMB: -1.1% in 2020F).

"Malaysia’s consumer price index (CPI) fell 0.2% y-o-y in March (+1.3% y-o-y in Feb), the first negative inflation print since February 2019, with a plunge in the transport index (-8.9% y-o-y in March vs +2.4% y-o-y in February) outweighing an uptick in food prices (+1.2% y-o-y vs +0.8% y-o-y in February). As a result, the CPI declined 1.2% m-o-m,” they said.

On March 3, BNM said in a statement that its monetary policy committee (MPC) decided to reduce the OPR by 25bps to 2.50%.

BNM said the Malaysian economy grew at a moderate pace of 4.3% in 2019 and, looking ahead, the central bank said growth, particularly in the first quarter of 2020, will be affected by the Covid-19 outbreak primarily in the tourism-related and manufacturing sectors. The weakness in the agriculture sector is also likely to persist in the first quarter, BNM said.

"The reduction in the OPR is intended to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation,” BNM said.