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KUALA LUMPUR (Nov. 2): Malaysia’s central bank will hold its key rate stable on Tuesday, according to a slim majority in a Reuters poll, amid a further surge in coronavirus cases and political uncertainty linked to a challenge to Prime Minister Tan Sri Muhyiddin Yassin’s leadership.
The last meeting of the year of the monetary policy committee of Bank Negara Malaysia (BNM) also comes just days before the Muhyiddin administration presents its first budget. Muhyiddin has said that the budget will focus on measures to counter the economic impact of the Covid-19 pandemic.
Nine of 17 economists surveyed expect Bank Negara Malaysia (BNM) to keep its official overnight interest rate at a record low of 1.75%, after delivering 125 basis points of rate cuts this year.
The remaining eight economists expect the central bank to reduce the policy rate by 25 bp to a record low of 1.50%.
Malaysia’s export-dependent economy has shown “visible” signs of recovery, as shipments rebounded 4.4% in the third quarter after a 15.1% contraction in the April-June quarter, according to the economist. Head of Bank Islam, Mohd Afzanizam Abdul Rashid.
“Our feeling is that 3Q2020 GDP could grow positively, albeit at a marginal rate. As such, there is less incentive or motivation from BNM to cut the policy rate,” Mohd Afzanizam told Reuters.
But some analysts say the central bank may consider cutting its key rate further in light of the surge in coronavirus cases in the past two months, which tripled the cumulative total to more than 32,000 cases since before the start of a third wave in September.
A recent challenge to Muhyiddin’s position by opposition leader Anwar Ibrahim has “increased the political noise,” adding to “downside risks to growth,” according to a Standard Chartered research note.
BNM, which is scheduled to announce the country’s third-quarter growth performance on November 13, had forecast the economy to contract 3.5-5.5% this year. Malaysia’s economy contracted 17.1% in the April-June period, its first contraction since the 2009 global financial crisis.
So far, the government has announced stimulus measures worth RM305 billion to help boost the economy of the coronavirus-ravaged country.
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