KUALA LUMPUR (Sept 9): Economists are still not seeing any form of indication by the central bank of possible changes in the overnight policy rate (OPR) in the foreseeable future, following the Monetary Policy Committee (MPC)’s decision today to maintain the policy rate at its record low of 1.75%.
Today’s decision marks the seventh consecutive time the OPR was maintained, with the rate last adjusted in July 2020 — a 0.25 basis point cut from 2%.
The rate was held steady over 14 months, during which the nation saw several resurgences of Covid-19, resulting in the Movement Control Order (MCO) being reinstated twice.
UOB Malaysia senior economist Julia Goh said the overall tone of the MPC statement was balanced, with Bank Negara Malaysia (BNM) acknowledging both the continued recovery of the global economy and the potential risks such as the emergence of Covid-19 variants and heightened volatility as major economies embark on monetary policy normalisation.
She said the central bank seemed to be optimistic about the easing of containment measures, continued progress in inoculating the population and the recovery in global demand would support the recovery and growth going into 2022.
“We did not see any signal for a rate change in either direction. Although risks to the growth outlook remain tilted to the downside due to both external and domestic factors, BNM reiterated that the current level of interest rate remains appropriate and accommodative,” said Goh, in an email response to queries from The Edge.
UOB Malaysia projects BNM to keep the policy rate unchanged until mid-2022, and expects more sectors to reopen soon, given that 80% of the adult population is set to be fully vaccinated over the next two months.
MIDF Research economist Abdul Mui’zz Morhalim said the decision to maintain the OPR was largely in line with expectations, adding that there is less need for a further easing of the monetary policy.
He also sees growth momentum picking up as lockdown restrictions are relaxed.
“We expect BNM to maintain OPR at 1.75% throughout this year to support Malaysia’s economic recovery. Apart from the improving growth momentum, there is less need for monetary policy easing given the support from fiscal stimulus and moderation in inflation.
“Going into 2022, if growth momentum remains stable and sustainable, there is a possibility that BNM would consider beginning normalising the OPR next year,” said Abdul Mui’zz.
OCBC Bank economist Wellian Wiranto, who previously said Malaysia deserves a bit of a boost from further easing of the OPR, noted that the central bank had stayed pat despite slashing its growth forecast and how it had highlighted the prevalence of downside risks both globally and domestically.
“By focusing on how growth momentum ‘going into 2022’ will be supported by expectations of ‘further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand’, it might have also decidedly opted to place the hope for a better future ahead of the lingering pain of the present for now,” said Wiranto.
He said the bar for BNM to cut the policy rate appeared to be “loftier than we had anticipated”, adding that if months of lockdown resulting in a technical recession do not move a needle now, it would take risks of much greater magnitude for the central bank to consider easing the OPR.
“The 1.75% level of the OPR has been a tough floor to crack and likely to remain so in the foreseeable future, unless events take a dramatic turn southward,” he added.