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KUALA LUMPUR (Feb 4): Bank Negara Malaysia (BNM) is unlikely to cut its overnight policy rate (OPR) any further from the current 1.75% in 2021.
During a question and answer (Q&A) session at Affin Hwang Capital’s Malaysia Economic Outlook and Construction Sector Briefing today, Affin Hwang chief economist Alan Tan said that as it stands, BNM cut the OPR by 125 basis points (bps) last year, and that the central bank feels the current OPR is supportive of economic growth.
“Therefore, we believe that the central bank would likely leave the rate at 1.75%."
He pointed out that on top of that, BNM also cut the statutory reserve level last year and allowed banks to use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGIIs) to meet Statutory Reserve Requirement (SRR) compliance. That provided substantial liquidity of RM47 billion to the system.
"The focus is on providing liquidity to the system, and we think that instead of cutting policy rates, Bank Negara will continue providing liquidity to the system, and that is through the combination of easing monetary policy and providing liquidity. That would be sufficient for the economy without having to cut interest rates further,” Tan viewed.
On Jan 20, BNM maintained the OPR at 1.75%, and announced the extension of flexibility for banking institutions to MGS and MGIIs to meet SRR compliance until Dec 31, 2022.
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