Bank Negara Malaysia (BNM) has announced that the Overnight Policy Rate (OPR) will be maintained at 1.75 per cent in a meeting yesterday.
After the key rate had been cut by 125 basis points (bps) over the first four cuts already this year, economists had expected this decision for the November Monetary Policy Committee (MPC) meeting. It is largely seen as the last cut for a while as CGS-CIMB economist Michelle Chia predicts an extended pause into 2021.
"Despite our view that BNM retains the policy space to be more accommodative given the significant output gap and weak inflation outlook, we think the central bank is taking the stance that monetary policy is sufficiently calibrated.
"Therefore, we expect the OPR to remain unchanged at 1.75% until end-2021," she wrote in a note, adding that the market is now turning to the tabling of Budget 2021 later this week. Similarly, MIDF Research said there is no further need to cut the OPR, as the current rate is deemed to be accommodative.
Global Economy Continues to Recover but Maintains Risk Aversion
In a statement, BNM said the global economy continues to recover, led by improvements in manufacturing and export activity although the resurgence in Covid-19 cases suggests that the global economic recovery will likely remain uneven in the near term.
"For Malaysia, the latest indicators point towards significant improvement in economic activity in the third quarter. The introduction of targeted measures to contain Covid-19 in several states could affect the momentum of the recovery in the fourth quarter. Nonetheless, growth for the year 2020 is expected to be within the earlier forecasted range.
"For 2021, economic activity is projected to improve further. This will be underpinned by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new facilities. Nevertheless, the pace of recovery will be uneven across sectors, with economic activity in some industries remaining below pre-pandemic levels, and a slower improvement in the labour market. Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the pandemic globally and domestically,” BNM said in the statement, which was issued following the conclusion of its Monetary Policy Committee's (MPC) final meeting for 2020 today.
During the meeting, the MPC also released their schedule for 2021 meetings.
- "BNM Maintains OPR At 1.75% At Final Monetary Policy Meeting For 2020". The Edge Markets, 2020, https://www.theedgemarkets.com/article/bank-negara-keeps-opr-175.
- "BNM Largely Seen Done With OPR Cuts Till End-2021". The Edge Markets, 2020, https://www.theedgemarkets.com/article/bnm-largely-seen-done-opr-cuts-till-end2021.