● Expected and unanimous. The Federal Open Market Committee (FOMC) voted unanimously to keep rates unchanged between a range of 0.0% and 0.25%, as widely expected.

● COVID-19 remains top concern: "The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the committee emphasised in its statement.

● On standby. With the US election still in the balance and the diminishing prospects for aggressive fiscal stimulus, the FOMC reaffirmed its intention to continue to support the recovery: continued bond buying and its signal to hold interest rates near zero at least through 2023.

● Re-instating policy stance. As Fed Chairman Jerome Powell has urged in the past several meetings, i.e. the need for more fiscal policy measures to complement the monetary measures, he also sees potential for stronger economic growth when Congress decides it's appropriate to provide more fiscal support.

● Fed still has more options. Meanwhile, Powell emphasised that the Fed is “just getting started on decisions on emergency facility extensions” and reiterates that the “Fed isn't out of ammo concerning monetary policy.”

● BNM ready to act. On the domestic monetary front, we believe that Bank Negara Malaysia would take appropriate measure to support the economy if the pace of recovery appears to diminish over the next coming months. With the economy suffering from a third wave of outbreak of the COVID-19 pandemic, we expect this would raise the likelihood that the easing cycle would resume. Hence, we are currently assigning a 50% probability of a 25bp cut on the overnight policy rate at its first Monetary Policy Committee meeting in January.

Source: Kenanga Research - 6 Nov 2020