Research houses mixed on outlook for OPR in 2021

27 Nov 2020 / 00:19 H.

KUALA LUMPUR: Maybank Investment Bank Bhd (Maybank IB) expects the Overnight Policy Rate (OPR) to stay at 1.75% until end-2021 after Malaysia’s Consumer Price Index (CPI) shrank 1.5% year on year in October 2020.

“But this is a ‘dovish pause’ amid downside and tail risks to economic outlook,“ the investment bank said in a note.

Meanwhile, Kenanga Research assigned a 50% probability that Bank Negara Malaysia (BNM) would cut the OPR by 25 basis points at the next Monetary Policy Committee meeting in January 2021.

“This is due to the continuing surge in local Covid-19 infections and the extension of conditional movement control order (CMCO) measures,“ it said in a note.

Maybank IB said it continues to expect negative monthly inflation rate for the rest of the year amid the contraction in real gross domestic product (GDP) and lower average global crude oil (Brent) price, the year-on-year effect of the 18% reduction in PLUS tolled highways since Feb 1, 2020, and electricity bill discounts from Apr 2020 to Dec 2020 as part of government measures to assist households and businesses amid the recession triggered by the Covid-19 pandemic.

It has forecast Malaysia’s GDP to contract 5.4% in 2020 compared with a growth of 4.3% in 2019, while Brent crude is expected to average at US$40-45 per barrel in this year versus US$64 per barrel last year.

Meanwhile, Kenanga Research has revised downwards its 2020 CPI forecast to -1% from -0.7% compared with 0.7% in 2019, on the back of renewed deflationary threat amid worsening Covid-19 situation.

“The government’s decision to reimpose the CMCO in most of the states in Malaysia to prevent the Covid-19 situation from becoming worse may likely hurt consumer spending in the near term. – Bernama

Kenanga Research sees a 50% probability that Bank Negara Malaysia will cut the OPR by 25 basis points at the next policy meeting in January.

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