Malaysia: BNM kept rates on hold – UOB

The Bank Negara Malaysia (BNM) is forecast to keep monetary conditions on hold for the rest of the year, according to Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group.

Key Quotes

“Bank Negara Malaysia (BNM) held the Overnight Policy Rate (OPR) at 1.75% today (4 Mar). This came in line with Bloomberg market consensus and our expectations. This marks the fourth straight meeting that BNM kept rates on hold. The Statutory Reserve Requirement (SRR) was also kept unchanged at 2.00%. The next scheduled Monetary Policy Committee (MPC) decision is on 6 May 2021.”

“Although BNM continued to highlight potential downside risk and reiterated that future monetary decisions will be data dependent, we think that today’s assessment painted a less negative outlook compared to their previous assessment in Jan. The current Movement Control Order (MCO) has been relaxed to allow most economic activities to resume from Mar onwards, with exception of interstate travel. Other key supporting factors include the country’s vaccine rollout that started on 24 Feb. Malaysia’s external sector is projected to recover further in tandem with the global economy.”

“There are market concerns regarding the inflation outlook. BNM affirmed that any spikes in CPI in 2Q21 are expected to be temporary followed by moderation. Despite expectations of further improvements in 2H21, we think underlying economic conditions are unlikely to warrant any rate adjustments this year. Despite our expectations for a pick-up in GDP growth to 5.0% 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. As such, we expect BNM to keep the OPR unchanged at 1.75% for the rest of the year.”