PETALING JAYA: Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) has opted to maintain the Overnight Policy Rate (OPR) at 1.75%, as domestic indicators point to improvements in external demand and continued consumer spending.
In a statement, BNM said that while the reimposition of containment measures will affect growth in the first quarter, it anticipated the impact will be less severe than the one experienced in 2Q’20.
“Going forward, growth is projected to improve from the second quarter onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures,” it said.
The central bank elaborated that growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electric & electronic (e&e) and primary-related sub-sectors, as well as oil and gas facilities.
In addition, the rollout of the domestic Covid-19 vaccine programme will also lift sentiments and economic activity.
However, it cautioned that the growth outlook remains subject to downside risks, stemming mainly from ongoing uncertainties in developments related to the pandemic, and potential challenges that might affect the roll-out of vaccines both globally and domestically.
For 2021, the MPC projected headline inflation to average higher, primarily due to higher global oil prices.
In terms of trajectory, it expects headline inflation to temporarily spike in the second quarter of 2021 due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter.
“Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments.”
Given the uncertainties surrounding the pandemic, the MPC elaborated that the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth.
Meanwhile, analysts held to their view that BNM will likely keep the OPR at 1.75% for the rest of the year.
In a note, UOB Research said market observers are currently considering whether inflation risks may prompt BNM to consider normalisation of interest rates at the end of this year.
On the other hand, CGS CIMB Research expects BNM to downgrade its GDP growth forecast range, currently at 6.5-7.5%, when it publishes its Economic and Monetary Review later this month.
HSBC Global Research noted that from a growth perspective, there will be a massive setback in the first quarter as varying degrees of movement restrictions have resulted in a sharp contraction in private consumption spending, even if the measures are somewhat less draconian compared to 2020.
Overall, HSBC said there is a far smaller chance of additional easing this year, as after the first quarter, Malaysia should see a robust recovery thanks to the national vaccination programme coupled with a well-positioned export sector. AS such, it is forecasting no further changes to the OPR this year.
