Economists: BNM’s decision to maintain OPR indicates economic recovery confidence

KUALA LUMPUR, March 4 — Bank Negara Malaysia’s (BNM) decision to maintain the OPR at 1.75 per cent at its second Monetary Policy Committee (MPC) meeting today suggests that the central bank is confident of economic recovery this year on the back of improving global demand and consumer spending.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said nonetheless, the central bank is also cognisant of potential risks against the outlook particularly in light of the varying degrees of economic recovery, globally.

“This would mean the downside risks to the economy will continue to be visible, implying that BNM is mindful and stand ready to respond accordingly.

“In other words, if the present economic condition deteriorates, further reduction in the policy rates could happen to provide support to the economy. This is especially true when there is spare capacity in the economy, indicating that available resources are not optimally used at the present juncture,” he told Bernama.

In July last year, BNM reduced the overnight policy rate to 1.75 per cent, a record low since the floor was set in 2004. It has since maintained the rate.

Mohd Afzanizam said BNM seemed confident that the Malaysian economy would accelerate from the second quarter onwards as the vaccination programme will help its reopening.

Meanwhile, Sunway University economics professor Dr Yeah Kim Leng said BNM deemed a further cut to the historical low interest rates as unnecessary to support growth despite the implementation of the second movement control order and the still negative headline Consumer Price Index (CPI) inflation early in the year.

He said the low and unchanged interest rate amid subdued price pressures are seen as providing a stable financial environment for economic activities to pick pace in the second quarter onwards.

UOB Malaysia senior economist Julia Goh said today’s assessment painted a less negative outlook compared to the bank’s previous assessment in January.

“Despite expectations of further improvements in second half of the year, we think underlying economic conditions are unlikely to warrant any rate adjustments this year.

“Despite our expectations for a pick-up in gross domestic product (GDP) growth to five per cent in 2021, we expect parts of the economy will continue to face challenges, unemployment rates to stay elevated above pre-pandemic levels, and spare capacity to prevail this year,” she said.

She said UOB expects BNM to keep the OPR unchanged at 1.75 per cent for the rest of the year. — Bernama

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