OCBC Economist: BNM May Reduce OPR To 1.50% This Month

(Image: The Star)
(Image: The Star)

OCBC Bank Research has predicted that Bank Negara Malaysia (BNM) may further reduce the overnight policy rate (OPR) by yet another 25 basis points in the monetary policy committee meeting on 20 January 2021. If carried out, the OPR will plummet down to 1.50%.

Not only that, the bank’s global treasury, research, and strategy economist, Wellian Wiranto also foresees that the OPR could be slashed even more to 1.25% in the March meeting. These new predictions stand in contrast with previous forecasts from several economists, most of whom opined that BNM will maintain the OPR at 1.75% throughout 2021 unless there were significant threats.

It bears mentioning that Wellian’s latest predictions are based on recent developments within the country, which saw the Malaysian government reimplementing the movement control order (MCO 2.0) in selected states as it battles against the spread of Covid-19. The country also declared a state of emergency yesterday. Wellian noted that MCO 2.0 covers some of the most economically active regions of the country, including Selangor, Penang, Melaka, Johor, Sabah, and Kuala Lumpur. Together, these regions make up a significant 67.7% of the economy.

(Image: The Edge Markets)

“With its recovery momentum stymied, it will be even harder now for the economy to reach the 6.5% to 7.5% GDP growth target that the government has in mind, making it tough to envision any grand fiscal largesse to counter the blow, even as the declaration of state of emergency gives it some wiggle room. Hence, Malaysia would continue to have to lean more heavily on monetary support. Bank Negara is likely to cut its OPR once more on 20 January,” said Wellian.

Wellian added that the latest MCO measures will inadvertently dampen the slight recovery that Malaysia had begun to experience during the third quarter of 2020. It will also limit economic growth in the first quarter of 2021. “Even as exports continued to show signs of benefitting from a recovery in demand in electronic goods, the domestic segment would likely continue to be a drag – and even more so now,” he said.

On top of that, Wellian pointed out that Malaysia’s unemployment rate – which is still elevated – has increased as well, thereby putting further pressure on consumption. According to the latest report from the Department of Statistics Malaysia, the country’s unemployment rate stood at 4.8% as of November 2020.

“All in all, we see downside risks to our 2021 GDP forecast. Previously at 6%, it is already relatively low compared to the 6.5% to 7.5% range targeted by the government and latest 6.8% consensus. However, the culmination of recent events and the distinct likelihood that the MCO may be extended beyond the current stipulated period of two weeks are likely to pressure on first quarter growth further,” said Wellian, adding that the GDP growth rate is now likely to be 5.7% year-on-year instead.

(Source: The Star)

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