MNI STATE OF PLAY: No Change Expected At BNM As Economy Opens

Malaysia's central bank meets on Thursday and is expected to keep its Overnight Policy Rate (OPR) steady at 1.75% for the seventh consecutive meeting.

With Malaysia's economy beginning to open up after lockdowns and vaccinations gathering pace, Bank Negara Malaysia will be looking to a pickup in economic activity and is unlikely to ease monetary policy further after cutting rates by 125 basis points last year, see: MNI STATE OF PLAY: Malaysia CENBANK Rates Policy Still Dovish.

BNM has, however, cut its growth forecast for this year to between 3% and 4%, well down from earlier forecasts as the economy has suffered in the pandemic.

MNI understands the central bank had previously believed that another rate cut may be required in the latter half of this year, but the re-opening of the economy and the positive impact from fiscal stimulus is likely to see the bank stay pat on Thursday.

ECONOMIC MEASURES

A new six-month loan moratorium was announced earlier in July and an estimated one million small and medium sized businesses are expected to benefit from cash payments under the US$35 billion Pemulih stimulus package.

While this is welcome, statutory debt is expected to move very close to the limit of 60% of GDP set last year, and although there have been calls from the Government in recent days to raise this to 65%, further fiscal measures are now limited, and the Government is running out of ammunition.

Both the Government, which is dealing with its own instabilities after the recent departure of Muhyiddin Yassin and his replacement by new Prime Minister Ismail Sabri Yaakob, and BNM are now likely to wait for a boost as the economy re-opens before using what remains of limited fiscal and monetary ammunition.