Wellian Wiranto
KUCHING: Signs are looking set for Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) unchanged for the rest of the year — similar to its decision on Thursday, driven by various fiscal aid through eight Covid-19 stimulus programmes filtering through into the economy this year.
Momentum will also be driven by the expansionary 2021 Fiscal Budget following a 50 per cent increase in the development expenditure (DE) allocation.
Growth momentum should also be supported by consumption-driven initiatives like the relaxation in the Employee Provident Fund’s (EPF) withdrawal schemes through the i-Sinar, i-Lestari and i-Citra programmes.
OCBC Bank economist Wellian Wiranto said BNM once again opted to keep its rate unchanged, despite having slashed the 2021 growth forecast by half essentially and continuing to highlight the prevalence of downside risks from global and domestic ends.
“MPC’s stance has not detracted from the previous ones, striking a balance by emphasising how even though the Malaysian economy has suffered due to the long rounds of the Movement Control Order, but wounds are not deep enough for more relief to be had.
“If months of lockdown resulting in the spectre of a technical recession do not move the needle now, it would probably take a manifestation of risks of much greater magnitude for BNM to be easing,” he said.
Wiranto opined that BNM should have decidedly opted to place the hope for a better future ahead of the lingering pain of the present for now.
“To be sure, BNM highlighted its readiness to act if necessary, despite the bar for it to cut the OPR appears to be a lot loftier than we had anticipated,” he said.
Researchers with Public Investment Bank Bhd (PUblicInvest Research) saw that Malaysia’s engine of growth continues to recover as evident in the steady turnaround in high frequency indicators like the Consumer Price Index, Industrial Production Index and trade figures — an encouraging trend that is expected to continue for the rest of the year.
“This will be further pushed by favourable external conditions thanks to full economic openings in major economies such as the US, Eurozone and China,” it said in its notes.
“This, along with expansionary global fiscal strategy will push demand for our key export products especially manufacturing goods. Combination of drivers and the full implementation of eight fiscal stimulus programmes will push economic activity to rebound favourably this year.”
PublicInvest Research also believed Malaysia’s economic activity is set to recover this year to be driven among others by expansionary fiscal strategy.
This comes as eight fiscal stimulus programmes worth RM530 billion — making up 39 per cent of the nation’s gross domestic product — in direct and indirect aid will push output to reach near the pre-crisis levels.
“Growth will also be boosted by favourable external conditions that will spur demand for our key products like agriculture, manufacturing and mining,” it added.
“Growth will also be supported by accommodative interest rate environment. Other growth drivers may come from the creation of at least 500,000 new employments through the private-public initiatives, an impetus that will boost consumption activity.
“The data-dependent strategy by the central bank following the lag impact of stimulus spending and accommodative interest rate environment should see the OPR remaining steady for the rest of the year.”
While the transition of more states out of Phase 1 of the National Recovery Plan augurs well for the growth outlook, Hong Leong Investment Bank Bhd said this could also bring about heightened risks of transmission and a pushback of the domestic economic reopening timeline.
“We maintain our expectation for OPR to be maintained at 1.75 per cent in 2021, premised on expectation of improved domestic vaccination progress and continued global economic recovery,” it said with slight caution.