Bank Negara Malaysia (BNM) held the overnight policy rate (OPR) at 1.75% for a seventh straight meeting, a decision expected by 23 out of 24 economists surveyed by Bloomberg. The one exception had forecast a 25-basis point cut.
“Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand will support the growth momentum going into 2022,” the central bank said in a statement announcing the decision.
While the bank’s economic view remained cautious, language on the outlook was improved slightly, from ‘subject to significant downside risks’ following July’s statement on the same to ’tilted to the downside’ today.
Malaysia’s accelerated vaccine roll-out has enabled the economy to reopen in stages.
The ringgit was little changed after the decision at 4.1505 to the dollar. Yields on 10-year government bonds were steady at 3.24%.
“The rate hold decision continues to signal a high bar for BNM to cut rate, even if it has left the options open still,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp (OCBC) in Singapore.
“Unless the domestic reopening plan comes asunder and the global demand slows down perceptibly, BNM will most likely stay the course from here,” he added.
Vaccine roll-out
Malaysia’s swift vaccine roll-out has allowed the government to ease virus curbs state by state and announce perks for those who are fully vaccinated, even as infection numbers remain high.
More than half of the population is now fully vaccinated as of yesterday, paving the way for the government to reach its target of reopening all economic and social sectors by the final quarter of the year.
To be sure, risks remain. Confirmed cases are set to breach the two million mark by next week, adding pressure to hospitals already running low on beds for Covid-19 patients.
The distribution of vaccines has favoured the economic powerhouses of Kuala Lumpur and Selangor, with most other states trailing. And the government’s limited fiscal space could hinder its ability to support the economy if the national recovery plan goes off track.
BNM also reported that headline inflation has averaged 2.3% year-to-date and is projected to average 2.0%-3.0% for the full year, while core inflation is expected to average 0.5%-1.5% for 2021 amid continued spare capacity in the economy, and should remain relatively subdued next year.
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