The economy contracted in the first quarter due to the Covid-19 pandemic, forcing the government to impose a lockdown on critical areas. The MCO also impacted economic activity since it was imposed March 18 and was on Monday lifted conditionally.
KUALA LUMPUR: Bank Negara is expected to slash the overnight policy rate (OPR) by 50 basis points (bps) on Tuesday during its monetary policy committee (MPC) and a further 25bps in July, said Standard Chartered Global Research.
It said on Monday the central bank is expected to cut the rates down to 2% on Tuesday and subsequently to 1.75% two months later, lower than the 2% reached during the global financial crisis in 2008 to 2009.
"Even though the March monetary policy statement was balanced rather than outright dovish, we believe the economic situation has worsened meaningfully.
"Malaysia introduced movement restriction measures on March 18 and is expected to last until May 12. The necessary measures are set to exact a shortterm economic cost," it said in a research note.
Given that Bank Negara had already cut 50bps since the start of the year, Standard Chartered Global Research said a 50bps cut in May would be appropriate to balance between the need to extend monetary policy support and stability in monetary policy decisions, adding that growth projections remained highly uncertain.
"While fiscal pledges are significant (around 17% of the gross domestic product (GDP), indirect support, such as loan moratoriums to individuals and businesses from banking institutions, account for the bulk of support.
"In addition, Malaysia has relatively high household leverage, which should benefit from rate cuts. We estimate that a 50bps cut to the mortgage rate may help households save around 0.4% of GDP per annum," Standard Chartered Global Research said.
https://www.thestar.com.my/business/business-news/2020/05/04/bank-negara-may-cut-opr-by-50bps-on-tuesday-and-25bps-in-july
