BNM likely to maintain OPR at 1.75%


HSBC Global Research expects Bank Negara Malaysia (BNM) to keep the Overnight Policy Rate at 1.75% at its third Monetary Policy Committee meeting on Thursday.

In a research note yesterday, its chief economist for ASEAN, Joseph Incalcaterra, said despite downside risks to BNM’s economic growth forecast, there was a high bar for further monetary policy accommodation.

“BNM can count on manufacturing growth to provide support to the economy and employment.

“The government has also secured enough vaccine doses to enable the country to achieve some form of herd immunity by end-2021, despite supply challenges and signs of vaccine hesitancy in the short term,” he added.

He pointed out that despite a slow start to vaccinations, Malaysia was one of only a few Asian economies that might reach herd immunity this year.

Incalcaterra said HSBC Global Research expected the upward momentum for export to be sustained after the country recorded a 31% year-on-year increase in March, which was driven by a 47.1% jump in electronics exports.

He added that activity in Malaysia’s manufacturing and export sectors continued to roar, in line with the expectation that export growth would accelerate due to soaring demand for Malaysia’s semiconductor exports.

He attributed this in part to a large share of automotive chip production, coupled with higher commodity export volumes.

Moreover, Incalcaterra said headline inflation was likely to continue rising in 2021 due to base effects and higher energy prices.

“While BNM can look through this volatility, it would reduce the likelihood of further easing as the real policy rate buffer evaporates.

“BNM also remains focused on elevated household debt growth and can rely on still-expansionary fiscal policy to provide targeted support to the economy,” he added.

He noted that Malaysia appeared to be in the midst of a worrying fourth wave of Covid-19 infections, with daily new cases now exceeding 3,000 and hospital occupancy rates around Kuala Lumpur being alarmingly high.

“Some degree of further restrictions appears likely, and mobility and consumer spending may soften further in the coming weeks.

“This could significantly derail the pace of the recovery in the second quarter,” said Incalcaterra.

Source: Bernama

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