Wednesday 28 Feb 2024
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KUALA LUMPUR (July 5): Nomura Research expects Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) by 25 basis points to a fresh low of 1.5% at its Monetary Policy Committee meeting this Thursday (July 8).

The rate cut is possible due to the latest lockdown which is expected to derail the economic recovery momentum, according to its chief Asean economist Euben Paracuelles.

Note that Selangor and Kuala Lumpur contribute about 40% to the nation's gross domestic product (GDP).

“The downside risk that BNM has been flagging in recent months is now materialising, therefore warranting an adjustment in the policy stance to increase the accommodation level and support the recovery,” he said in a media conference call on “2021 Asia Economic, Currencies & Equities Mid-Year Outlook”.

The OPR has been kept unchanged at 1.75% since July last year after the central bank had slashed 125 basis points in the first half of 2020 to adopt an expansionary monetary policy to prevent the domestic economy from deteriorating. 

The enhanced movement control order (EMCO) is being implemented in various parts of Selangor and Kuala Lumpur for two weeks starting last Saturday (July 3) until July 16 given the stubbornly high daily new Covid-19 cases in the Klang Valley. 

Other supporting reasons for the rate cut, he noted, are the country’s high household debt-to-GDP ratio of above 90% last year, as well as lower-than-expected inflation rate.

“About 80% of bank loans have variable rates, which means that if the policy rate comes down, lending rates will also come off for these loans and this will help ease some of the debt burden.”

“Inflation has underperformed a lot compared with the BNM’s forecast for the last couple of months. They (BNM) were forecasting 6.5%-7% in headline inflation, but the actual numbers were less than 5%. Also, core inflation has been lower and stable,” Euben added.  

In May, Malaysia’s Consumer Price Index (CPI) rose 4.4% year on year, driven by a lower base effect and a 26% increase in the transport segment.

Edited ByKathy Fong
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