[ad_1]
KUALA LUMPUR: Malaysia is expected to keep its benchmark interest rate unchanged for the first time this year, as the reopened economy shows signs of recovery.
Bank Negara Malaysia (BNM) will keep its overnight policy rate at a record low of 1.75% at its meeting today, according to 12 of 21 economists surveyed by Bloomberg. The other nine expect a 25 basis point cut.
A suspension would end the series of back-to-back easing decisions by the central bank amid the Covid-19 pandemic. Gross domestic product contracted 17.1% from a year earlier in the second quarter, its worst performance since 1998, even as the central bank cut rates in four consecutive meetings and the government promised a stimulus of RM295 billion. .
Signs of economic recovery have emerged since Malaysia began lifting movement restrictions to contain the virus in May. Gross domestic product data showed a “sharp increase” in activity, from a 28.6% contraction in April to just -3.2% in June, according to Finance Minister Tengku Zafrul Aziz. That indicates better growth in the coming months, he said.
Here’s what to consider in today’s decision:
Growth outlook
BNM projected in August that the economy would contract between 3.5% and 5.5% this year, with the worst hit in the first half. This corresponded with improvements in key economic data. Malaysia posted a trade surplus of RM25.15 billion in July, breaking the record set a month earlier. The unemployment rate fell to 4.9% in June from May’s all-time high of 5.3%.
Policy focus
BNM Governor Nor Shamsiah Mohd Yunus has said the bank is prepared to use its political levers if necessary and has room for specific measures in the event of a second virus wave.
So far this year, it has cut banks’ mandatory reserve ratios by 100 basis points to 2%, and allowed them to count holdings of government bonds in legal reserve requirements. These measures have freed billions of ringgit of liquidity in the banking system.
Inflationary trend
Consumer prices in Malaysia continued to decline in July, albeit at a slower pace as declines in transport prices moderated. Annual inflation is likely to be negative, BNM said in July.
“The downside risk of inflation remains in the event of a second wave of Covid-19 in the country, which may lead the government to reintroduce stricter health measures, suppressing demand,” wrote analyst Ahmad Nazmi Idrus from RHB Research, in a note. . Forecast headline inflation at -1% for the year.
