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KUALA LUMPUR (May 4): Standard Chartered (StanChart) (pictured) expects Bank Negara Malaysia (BNM) to cut the overnight policy rate (OPR) by 50 basis points (50bps) to 2% tomorrow.
In a note on Saturday, StanChart said it expects the central bank to continue to ease a further 25bps in July. This would take the policy rate to 1.75% lower than the 2% reached during the 2008-2009 global financial crisis.
"Even though the March monetary policy statement was balanced rather than outright dovish, we believe the economic situation has worsened meaningfully since the March 3 decision as Malaysia has introduced the movement control order (MCO), which is expected to last until May 12. This necessary measure is set to exact a short- term economic cost.
"Given that BNM has already cut 50bps since the start of the year, a 50bps cut in May would be appropriate, in our view, in balancing between the need to extend monetary policy support and stability in monetary policy decisions," it said.
Moreover, StanChart said growth projections remain highly uncertain.
It said while fiscal pledges are significant (about 17% of gross domestic product [GDP]), indirect support, such as loan moratoriums to individuals and businesses from banking institutions, account for the bulk of support.
"In addition, Malaysia has relatively high household leverage, which should benefit from rate cuts. For example, they estimate that a 50bps cut in the mortgage rate may help households save around 0.4% of GDP per annum," it added.
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