Malaysia

Has BNM put a stop to rate cut?

BNM decided to leave the policy rate unchanged in the latest MPC meeting, holding the OPR at 1.75%. Does this mean that BNM has put the brakes on rate cutting following a cumulative 125bps in 2020 to bring the OPR to a record low of 1.75%?

It remains relatively premature to conclude that there will not be further rate cuts. As pointed out by BNM, the downside risk remains although the economic activity continues to recover from the trough in April supported by stimulus measures.

Hence it is vital at this point in time to realize that just because we are seeing some good economic numbers, it does not mean the worst is over. Thus, we cannot totally discount that rate cuts have come to a total halt.

• The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has decided to maintain the overnight policy rate (OPR) at 1.75%, the lowest level since it was implemented in 2004. The decision to hold rates was expected by 12 while 10 were anticipating a 25bps cut and we were in this group.
• In the latest MPC statement, BNM was less dovish compared to in July. This time around, BNM cited the “economic activity continues to recover from the trough in April this year and the economic recovery is being supported by the fiscal packages, monetary and financial measures”.
• Nonetheless, BNM recognised that the downside risk remains. The risk of the pandemic plus ongoing uncertainties will continue to weigh on both the global and domestic economy. And recovery will remain uneven across the sectors.
• Does this mean that BNM has put on the brakes on rate cutting following a cumulative 125bps in 2020 to bring the OPR to a record low of 1.75%? It remains relatively premature to conclude that there will not be further rate cuts. As pointed out by BNM, the downside risk remains.
• Hence it is vital at this point in time to realize that just because we are seeing some good economic numbers, it does not mean the worst is over. We still need to focus on the developments around us and the world.
• Besides, we need to recognise that we still have a long way to go before this pandemic is really over. Thus, we cannot totally discount that rate cuts have come to a total halt.

Source: AmInvest Research - 11 Sept 2020