PETALING JAYA: Most economists expect Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) tomorrow by 25bps to 2.50% even though the government had announced a RM20 billion stimulus package last week.
This comes after the central bank surprised the market with a 25bps cut in January to 2.75%, the lowest since March 2011. It was seen as an early action to bolster growth as global risks began escalating.
OCBC Bank economist Wellian Wiranto said the stimulus package helps, but noted that the Malaysian economy will need all the help it can get given the multitude of challenges.
“We see the economy already showing signs of a slowdown in momentum from Q4 numbers, which are likely to be exacerbated by the ongoing outbreak scare. Add to that the potential hit on investment activities if the political drama drags on, and the central bank is likely to ease rates to help,” he told SunBiz.
He sees Q120 gross domestic product (GDP) growth at 3.5% year-on-year and 2020 GDP growth at 4.0%, and remain watchful of potential effects if the Covid-19 outbreak shows the potential to spread further globally.
TA Research said even a 50bps cut is possible in view of the current situation with bleak economic prospects, weak sentiment and low inflation environment.
Amid heightened risks to growth, JPMorgan believes BNM will lean on both fiscal and monetary support, therefore a trim in the OPR is anticipated.
It said the 2002-03 SARS outbreak had dampened Malaysia’s overall growth in first half 2003 but policy responses, both fiscal (economic stimulus package worth RM7.3 billion or 2.0% of GDP) and monetary (50bps cut in May 2003), paved the road to growth recovery in the second half of that year.
JPMorgan said if the Covid-19 outbreak and recent domestic developments continue to persist, it could put a dent in sentiment with a knock-on impact on domestic de-mand.
“Thus, even as fiscal policy steps up, in our view, further monetary policy support for the domestic economy could be expected in the near term beyond our current forecast. Thus, we are now expecting a 25bp monetary policy easing, in addition to our current forecast (25bps cut in Q220) which will bring the policy rate to 2.25% by end-1H20,” said JP Morgan.
Affin Hwang Capital, Kenanga Research and CGS-CIMB also see a rate cut tomorrow.
However, UOB is maintaining its view for BNM to keep the OPR unchanged at 2.75%, following its pre-emptive 25bps rate cut on Jan 22 and fiscal package of RM20 billion to mitigate downside risks to growth.
“However, if the risks related to Covid-19 are prolonged, this would pose a deeper drag on the economy and warrant further OPR cuts as economic risks tilt closer to a more severe scenario,” it added.
Malaysia registered 4.3% GDP growth last year, the lowest seen since the 2009 global financial crisis. Growth is projected to moderate to 3.2% to 4.2% this year as the Covid-19 outbreak has taken a toll on the economy.
