25bps OPR cut but dovish pause next?

KUALA LUMPUR 10 July - Malaysia’s economy to see ‘dovish pause’ in Bank Negara Malaysia (BNM) overnight policy rate (OPR) despite having cut by 25 basis points to 1.75% recently.

Year to date, OPR has been cut by total of 125 basis points after earlier 25 basis points cuts at 21 to 22 January 2020 and 2 to 3 March 2020 marginal propensity to consume (MPC), and 50 basis points cut at 4 until 5 May 2020 MPC.

Maybank Investment Bank Research (Maybank IB) expects OPR to remain at this record low until the end of 2021.

However, it is a “dovish pause” given the downside risk to the economic outlook despite the view of this recession bottoming in second quarter 2020.

“We now expect “dovish pause” in BNM’s OPR to preserve policy space given the record RM295 billion economic stimulus that includes RM45 billion direct fiscal injection by the government. 

“...the upcoming Budget 2021 in early of November 2020, and amid easing financial conditions like stock market rebound; reversal in MGS yields (10-year yield fell to and stable around 2.8%-2.9% since April 2020 after spiking during market selloff from 2.9% in February to 3.6% on 23 March 2020); stable Ringgit (steady vs US Dollar  around 4.28 vs the low of 4.45 on 23 March 2020),” said Maybank IB.

Read : BNM confirmed reducing OPR up to 1.75%

This is while acknowledging the downside risk to the global and domestic economic outlook despite the view of this recession bottoming in the second quarter of 2020.

Economic activity contracted sharply in second quarter 2020.  Following the gradual and progressive reopening of the economy since early May, economic activities have begun to recover from the trough in the same quarter.  

Fiscal stimulus packages, alongside monetary and financial measures, will continue to underpin the improving economic outlook.  

The projected improvement in the domestic economy is expected to be further supported by a gradual recovery in global growth conditions.

Notably BNM policy to deal with the economic fallout of COVID 19 is not just about OPR cuts.

Since March 2020, BNM has injected RM62 billion liquidity via 100 basis points Statutory Reserve Requirement (SRR) ratio cut plus flexibility in SRR compliance (RM41 billion).

BNM also reversed repo operations (RM1 billion) and MGS purchases at RM10 billion and many other proactive measures included.  - DagangNews.com