There were no surprises in BNM’s MPC meeting. BNM’s decision to hold rates was in line with expectations. While inflation is expected to spike in 2Q21, it should stabilise thereafter. Higher inflation would primarily come from the cost side of the equation. Inflation is projected around 3.0%–3.5%. Meanwhile, the policy rate is expected to stay at current levels throughout 2021, although there is a 10%–20% window for rates to be repriced upwards in 2H21 by 25bps.

Growth is expected to trend upwards in 2021 supported by global GDP and trade growth, the semiconductor upcycle, firm commodity prices, stimulus measures that would benefit both private and public expenditure, a pick-up in primary-related and foreign investment commitments, especially in high value-add. Nevertheless, downside risk remains due to the pandemic uncertainty and financial markets volatility. GDP for 2021 is expected to be around 6.0% with the downside at 5.0% and upside at 7.0%.

• The OPR was lowered by a total of 125bps in the first seven months of 2020 to a record low of 1.75%, where it has remained since. And the decision by Bank Negara Malaysia (BNM) to maintain the 1.75% policy rate was within expectations.

• At this point in time, there is no real urgency for BNM to reprice the current policy rate. Recent economic indicators showed improving momentum to the economic performance.

• The latest economic data is industrial production, which grew by 9.3% y/y in March (1.5% in February). Growth was supported by manufacturing, up 12.7% y/y (4.5% in February) while mining and electricity grew by -1.9% y/y (-6.0% y/y) and 10.3% y/y (-5.8% y/y) respectively. A low base also aided the IP’s performance in March. With that, preliminary estimation suggests that 1Q21 GDP is likely to hover between +0.3% and -1.0%.

• Despite the recent reimposition of containment measures in selected locations, its impact will not be as severe given most of the economic sectors are allowed to operate.

• With global GDP and trade outlook projected to expand, that would benefit Malaysia trade. The semiconductor upcycle, firm commodity prices, stimulus measures that would benefit both private and public expenditure, a pick-up in primaryrelated and foreign investment commitments, especially in high value-add would bode well to support growth.

• However, downside risk remains. The recovery trajectory could be disrupted from the uncertain path on the pandemic. Also, there are potential risks of heightened financial market volatility.

• While inflation is expected to spike in 2Q21, it should stabilise thereafter. Higher inflation would primarily come from the cost side of the equation. Inflation is projected around 3.0%–3.5% with GDP for 2021 expected to be around 6.0% with the downside at 5.0% and upside at 7.0%. The policy rate is likely to stay at 1.75% throughout 2021, although there is a 10%–20% window for rates to be repriced upwards in 2H21 by 25bps.

Source: AmInvest Research - 7 May 2021