• Status quo. As expected, the Federal Open Market Committee (FOMC) voted unanimously to hold rates steady between a range of 0.0% and 0.25% and reiterated their pledge to use their “full range of tools to support the US economy”.
   
• Economic recovery tied to pandemic. The Federal Reserve warned that the US economic recovery is tied to stemming the escalating health crisis as rocketing COVID-19 infections force many states to reverse reopenings.
   
• Powell’s promise. Fed Chairman Jerome Powell vowed to do “what we can for as long as it takes to provide some relief and stability”. He added that a full economic recovery is unlikely until people are “confident that it is safe to reengage in a broad range of activities”.
   
• Rate outlook: no change till next year. Judging by the Fed’s language and the resurgence of COVID-19 infections, we expect the current policy rate to remain unchanged till possibly the end of next year. In fact, the Fed promised to keep interest rates at rock-bottom levels until confident that the world’s largest economy “has weathered recent events”.
   
• BNM still has policy space to ease. On the domestic monetary front, we believe Bank Negara Malaysia still has ample policy space to embark on at least another 25 basis points cut, bringing the overnight policy rate to 1.50% at the next Monetary Policy Committee meeting in September. This is mainly supported by the current global economic outlook and the subdued inflationary pressure. But more importantly, there is the need for the monetary policy to reinforce the fiscal measures deployed recently under PRIHATIN and PENJANA.

Source: Kenanga Research - 30 Jul 2020