Cutting the rate by 50bps to two per cent, making it the biggest cut seen in a decate, brings the OPR down to a level previously only seen during the Global Financial Crisis back in 2007/2008. — AFP photo
KUCHING: The move to cut the Overnight Policy Rate (OPR) down to two per cent was largely anticipated by analysts and complements other financial, monetary and fiscal measures announced this year to cushion the negative economic impact of Covid-19.
Cutting the rate by 50 basis points (bps) to two per cent, making it the biggest cut seen in a decate, brings the OPR down to a level previously only seen during the Global Financial Crisis back in 2007/2008.
MIDF Amanah Investment Bank Bhd (MIDF Research) saw that the consecutive cuts were mainly due to intensifying challenges to both global and domestic front resulting from the Covid-19 pandemic.
“Global uncertainties over the pandemic, protectionism threats and volatility in commodity prices remain at large and projected to affect the trajectory of Malaysia’s external trade performance,” it reviewed in its notes yesterday.
“We believe expansionary monetary policy will provide support to domestic economy via private consumption and investment.”
This comes as Malaysian economic performance in 2020 will be largely influenced by the Covid-19 outbreak along with other factors such as threat of protectionism, global financial stability and oil price war.
The enforcement of the movement control order (MCO) in order to contain the virus halts economic activities as most companies temporarily shut down their operations and consumers stay home.
In its latest assessment of the global economy, BNM maintained its dovish tone indicating that measures to contain the pandemic has caused disruptions to economic activity in most economies, while global financial conditions have tightened due to higher risk aversion and uncertainty.
This was consistent with the view of IMF, where its latest World Economic Outlook projected global GDP to contract sharply by three per cent, a sharp downgrade of 6.3 ppts from January’s projection.
“Based on the current developments and indicators, we foresee Malaysian economy to fall into recession this year compared to 4.3 per cent year on year growth in 2019,” MIDF Research reaffirmed.
“Private consumption and investment along with external trade will be negatively impacted by the pandemic. Nevertheless, utilisation of both fiscal and monetary policies will cushion some of the adverse impact of this Covid-19 on the economy.”
To date, BNM has reduced its interest rate by 100bps on top of several other significant measures such as a reduction in the statutory reserve requirement (SRR) rate as well as imposing a six-month debt moratorium to support the economy.
RHB Research Institute Sdn Bhd (RHB Research) economist Vincent Loo believed these to be sufficient for the time being.
“Moreover, following the easing of MCO restrictions, the sharp decline in economic activity should decelerate somewhat,” he said in separate notes. “However as the risk of another wave of infection still remains, growth could likely remain weak for a longer time as consumers continue to be cautious about their spending habits.
“Given these conditions, our Gross Domestic Product (GDP) growth forecast for 2020 is revised lower to minus four per cent from zero. We shift towards a pessimistic outlook as we see a weaker growth recovery for much of the year as the country continues its battle with domestic Covid-19 cases.”