MNI BNM Preview - May 2021: OPR Seen On Hold Amid Virus Resurgence

MNI Point of View: OPR Seen On Hold Amid Virus Resurgence

• Malaysia is battling the third wave of coronavirus, but Bank Negara Malaysia are set to leave monetary policy settings unchanged. Conventional ammunition is running dry, with Overnight Policy Rate at the historical low of 1.75%. Persistent uncertainties force Bank Negara to keep monetary conditions accommodative, but some promising signs in economic data rule out any further cuts for now.
• Daily coronavirus infections have picked up across Southeast Asia, with consecutive countries declaring first cases of the infamous Indian variant. The variant has already been detected in Malaysia, which is witnessing another wave of new cases. The government seems inclined to continue applying targeted curbs, while working on fiscal stimulus measures as the immediate means of stimulating economic recovery.
• Economic data since the last monetary policy meeting have been net positive. While BNM has never adopted an explicit inflation targeting framework, it is mandated to secure price stability. Sustained recovery in CPI alongside green shoots in other economic indicators provide a solid argument for policymakers to stay away from policy levers for now.
• The MPC will weigh these positive signals about medium-term economic recovery and the accelerating rollout of Covid-19 vaccines against the worrying resurgence of the virus. Going forward, Bank Negara are expected to stand back and let fiscal policy take the main role in stimulating economic recovery, while focusing on macroprudential improvisation. Today's meeting is unlikely to rock the boat amid continued uncertainty surrounding the ongoing pandemic, albeit concern with the current wave of the virus may nudge policymakers to emphasise downside risks to the outlook.

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MNI BNM Preview May 2021.pdf