23rd April 2020 - 2 min read
CGS-CIMB Securities has predicted that Bank Negara Malaysia (BNM) may further reduce the overnight policy rate (OPR) by a total of another 75 basis points (bps) throughout year 2020. The cuts may be carried out gradually in anticipation of an impending economic decline and subdued inflation.
According to economists from the research house, Michelle Chia and Lim Yee Ping, BNM is likely to begin with a 50bps cut in May 2020, followed by another 25bps cut in the second half of the year. Additionally, the nation’s monetary policy may also be tweaked to be more accommodative.
CGS-CIMB also projected a sharp decline of 4.3% in gross domestic product (GDP) this year. The contraction will likely dampen the country’s economy for the next 12 to 18 months. Consequently, this will result in an extended period of subdued inflation of 1.1%.
Prior to this, BNM had already reduced the OPR by a total of 50bps via two recent cuts. The first cut, which was carried out in January 2020, saw the OPR being reduced by 25bps. This brought it down from 3.00% to 2.75%. In March 2020, BNM announced another 25bps cut, causing the OPR to settle on its current 2.5%.
According to BNM, the reduction in the OPR is intended to provide a more accommodative monetary environment to encourage the country’s future economic growth amid price stability. The central bank also commented that the country’s growth will be affected by the Covid-19 pandemic, particularly in the first quarter of 2020. This is especially so for tourism-related as well as the manufacturing and the agriculture sectors.
For the Malaysian public, an OPR cut will essentially lead to lowered interest rates for both savings and loans. This may be good news for those on a variable-rate loan (such as home loans) or those who wish to take out a loan in the near future. Conversely, you will also be earning less for your savings accounts and fixed deposits.
(Source: The Edge Markets)
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