BNM keeps overnight policy rate on hold, likely to refrain from further cuts in 2020

Malaysian central bank kept the overnight policy rate on hold at 1.75 percent today, consistent with expectations. Bank Negara Malaysia was decisively more optimistic in its statement regarding the economic growth.

The central bank highlighted that the latest high frequency indicators hint at a rebound in job market conditions, household spending, and trade. It also noted the positive impact of the fiscal stimulus package and its own accommodative policy.

Nevertheless, it also acknowledged the main risk of uncertainties regarding the course of the COVID-19 pandemic and uneven progress throughout sectors. Furthermore, today’s statement described the current policy stance to be appropriate and accommodative. However, the central bank reaffirmed its commitment to use all levels to guarantee a sustainable recovery. This reaffirmation implies that further easing might resume if the data start to falter, said ANZ in a research report.

“We concur with the view that growth in Malaysia is now past its point of maximum stress, but some sectors such as tourism and construction are likely to remain a drag on overall growth and that a negative output gap will persist until 2022”, stated ANZ.

Malaysia will remain closed to international tourists at least until the end of December. While the government is encouraging domestic tourism, the domestic receipts would not be enough to counter lost earnings from overseas tourists. The construction sector would be under pressure too as new projects would be slow to come by as the absence of transactions and tighter cash flows restrict demand.

“On balance, we are of the view that BNM will likely refrain from further rate cuts this year unless the recovery comes to a halt”, added ANZ.