News: BNM Holds OPR At 1.75%, Warns Of ‘Downside Risks’ From COVID-19

Jan 21, 2021

Bank Negara Malaysia (BNM) has decided to keep the Overnight Policy Rate (OPR) unchanged at 1.75%, as it expects continued recovery for the global economy.

The central bank said in a statement that the resurgence of COVID-19 cases and the subsequent containment measures have affected economic activity at several major economies, according to a Bernama report.

However, it expects the expedited rollout of mass vaccination programmes and ongoing policy support to lift global growth prospects.

“Financial conditions also remain supportive. The overall outlook remains subject to downside risks, primarily if there is a further resurgence of COVID-19 infections and delays in mass inoculation against COVID-19,” said BNM.

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In Malaysia, the resurgence of COVID-19 cases and the implementation of targeted containment measures affected the country’s recovery momentum during the final quarter of 2020 (Q4 2020).

With this, BNM expects 2020 growth to hover at the lower end of its earlier forecast range.

For this year, BNM noted that while the re-introduction of stricter containment measures is expected to affect near-term growth, the impact would be less severe than that seen in 2020.

The central expects the growth trajectory to improve from Q2 2021 onwards, driven by a turnaround in public and private expenditure on continued support from policy measures, the recovery in global demand as well as higher production from new and existing mining and manufacturing facilities.

“The rollout of vaccines in the coming months will also lift sentiments. Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the dynamics of the pandemic and potential challenges that might affect the rollout of vaccines both globally and domestically,” said BNM.

BNM considered the current monetary policy’s stance to be appropriate and accommodative.

“Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth,” it said.

OCBC Bank, however, still expects BNM to ease the OPR by Q2 2021.

“We see the ongoing challenges of COVID-19 case resurgence hurting things more – even if a lot less than in 2020 – and we have probably attached a lower probability of a smooth vaccine rollout,” said OCBC Bank Economist Wellian Wiranto as quoted by Bernama.

He noted that BNM is not in a hurry to slash rate just yet amidst a backdrop of an economic outlook that continued to be rather upbeat despite the changing circumstances.

“We are less assured than the central bank may be, in how growth rate can pick up all that effortlessly in the second quarter on the back of mass vaccination efforts,” said Wiranto.

 

Image source from Bank Negara Malaysia

 

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