MNI Bank Negara Malaysia Preview - March 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MNI Bank Negara Malaysia Preview – March 2021
Announcement Date: Thursday, 4 March 2021
Announcement Time: 07:00 GMT/15:00 MYT
Link to Rate Decision: https://www.bnm.gov.my/press-release-2021
MNI Point of View: Less Need For Immediate Action
The need to loosen monetary policy has diminished since the too-close-to-call January meeting, which saw the
central bank leave its Overnight Policy Rate unchanged at the record low of 1.75%. We expect Bank Negara
Malaysia to hold interest rates steady again, although there is an outside chance for a 25bp cut, which would
represent an attempt to give domestic economy a fresh boost.
The recent data were a mixed bag. Malaysia’s economy shrank at the fastest pace since the 1998 Asian Crisis in
the full 2020, as the renewed outbreak of Covid-19 delivered a blow to wobbly economic recovery. The contraction
was deeper than expected by both analysts and the Malaysian government, triggering speculation that BNM could
resume its easing cycle after the OPR stayed put since July 2020. Any fresh comments on the economic outlook
will be eyed today - after the release of the grim GDP report, BNM Governor Nor Shamsiah noted that “we will firm
up this year’s growth forecast next month when we release our Economic and Monetary Review 2020.”
Furthermore, higher-frequency PMI data published earlier this week confirmed that the manufacturing sector is
struggling to return into expansion amid pandemic-related disruptions.
But there is light at the end of the tunnel. The
aforementioned Markit Manufacturing PMI survey
suggested that businesses show increasing
optimism about the year-ahead outlook and
expect both demand and production to pick up in
the coming months. Meanwhile, the latest monthly
CPI report indicated a considerable slowdown in
deflation and it is worth noting that core CPI
turned positive, as headline index was weighed
on by lower transportation costs. Although prices
fell for the 11th month in a row, the pace of decline
was the slowest since March 2020.
Despite weak GDP data, Nor Shamsiah did not
appear to see an immediate case for cutting interest rates. In the February address cited above, she argued that
the 125bp worth of rate cuts delivered last year would continue to stimulate the economy, adding that “the
Monetary Policy Committee considers the stance of monetary policy is appropriate and accommodative” – albeit it
has room to ease policy further if needed. The inclusion of the latter phrase was not surprising, given the current
uncertain environment.
1|Page
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBThe key dynamic, however, plays out on the public
health front. While it came with a sizeable price tag,
Malaysia’s Movement Control Order (MCO) helped
suppress the increase in new Covid-19 cases, which
in turn allowed the authorities to gradually unwind
restrictions. Earlier this week, the government
announced that curbs in the capital and several
other economic powerhouses (Selangor, Johor,
Penang) will be eased from Friday, while the ban on
inter-district travel will be lifted, amid broader
relaxation of restrictions across the whole country.
The decision came a week after Malaysia launched
its vaccination campaign, inspiring hopes for an
eventual return to (relative) normality.
On a final note, in her post-GDP comments, Governor Nor Shamsiah suggested that the government has fiscal
policy space to provide additional support to the economy if needed and could expand borrowing, after parliament
passed a bill raising Malaysia’s debt statutory limit to 60% of GDP from 55% last year. Her comments may be read
as a signal that BNM does not see itself as bearing sole responsibility for stimulating the economy, should such a
need arise. Earlier this week, PM Muhyiddin announced that the government will indeed provide targeted relief
measures to individuals and businesses affected by the pandemic.
It goes without saying that there is a lot that can still go wrong. New strains of the virus mushrooming across the
globe and delays in vaccine deliveries could provide formidable hurdles on the path to economic recovery – there is
much uncertainty ahead. Given that the case for immediate easing has weakened since the last meeting, BNM will
likely decide to save ammunition for unpredictable challenges which may arise in the months to come. Improving
inflation outlook and the fact that the economic re-opening and vaccine roll-out are already underway should
persuade the MPC to hold fire today.
2|Page
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBBank Negara Malaysia January Monetary Policy Statement:
At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the
Overnight Policy Rate (OPR) at 1.75 percent.
The global economy continues to recover, led by improvements in manufacturing and export activity. However, the
recent resurgences of COVID-19 cases and the subsequent containment measures have affected economic
activity in several major economies. The expedited roll-out of mass vaccination programmes, together with ongoing
policy support, are expected to lift global growth prospects going forward. Financial conditions also remain
supportive. The overall outlook remains subject to downside risks, primarily if there is further resurgence of COVID-
19 infections and delays in mass inoculation against COVID-19.
For Malaysia, the resurgence in COVID-19 cases and the introduction of targeted containment measures has
affected the recovery momentum in the fourth quarter of 2020. As a result, growth for 2020 is expected to be near
the lower end of the earlier forecasted range. For 2021, while near-term growth will be affected by the re-
introduction of stricter containment measures, the impact will be less severe than that experienced in 2020. The
growth trajectory is projected to improve from the second quarter onwards. The improvement will be driven by the
recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy
measures, and higher production from existing and new manufacturing and mining facilities. The roll-out 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
roll-out of vaccines both globally and domestically.
In line with earlier assessments, the average headline inflation is expected to be negative in 2020 due mainly to the
substantially lower global oil prices. For 2021, headline inflation is projected to average higher, primarily due to
higher global oil prices. Underlying inflation is expected to remain subdued amid continued spare capacity in the
economy. The outlook, however, is subject to global oil and commodity price developments.
The MPC considers the stance of monetary policy 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. The Bank remains
committed to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic
recovery.
3|Page
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBSell-side comments:
ANZ: The daily COVID-19 case count has come down from a peak of 5,500 in early January to a little over 2,000
cases (week ending 23 February). Although this has prompted an easing of movement restrictions in some
Malaysian states, stringent measures are still in place in Selangor, Johor, Penang, and Federal Territory of Kuala
Lumpur. These four regions account for about 55% of national output, thus straining growth recovery in Q1.
Nevertheless, some real-time activity indicators, dented previously by the mobility restrictions, have been
recovering steadily. Manufacturing activity has also been strengthening based on the latest PMI readings, partly
boosted by the buoyant electronics industry. Additionally, the cumulative 125bp policy rate cuts in 2020has started
to give some impetus to credit impulse in the economy, and provided fillip to private demand. Needless to say,
further extension of mobility restrictions can unwind these gains and impair the overall recovery momentum.
Against this background of moderate growth momentum, monetary policy will remain accommodative. BNM will
continue to maintain sufficient liquidity in the financial system through purchase of government securities and
reverse repo operations. As such, we do not expect the central bank to deviate from its data-dependent path and
make a rate cut. We do acknowledge that this is a close call, given the slow pace of recovery. The path ahead
critically hinges on the speedy easing of mobility restrictions and an effective vaccination drive.
Barclays: We expect Bank Negara Malaysia (BNM) to leave its policy rate unchanged at 1.75% next week and
through the year. The central bank's bar for further rate cuts appears to be relatively high as the surge in COVID-19
infections and tightening of social distancing measures failed to tip the scales in favor of more policy easing in
January. The recent easing of social distancing measures, in fact, points to a diminishing drag on economic activity
and is unlikely to represent new information that could nudge BNM in favor of another rate cut. The tone of BNM's
press release accompanying the Q4 GDP data also remained relatively optimistic, in our view, focusing on the
medium-term recovery path rather than the near-term disruption from the MCO 2.0. Given the lags in monetary
policy transmission, BNM may be of the view that the economic boost from a rate cut now may only materialize
next year when the economy is on the upswing. The central bank may also be growing concerned that further rate
cuts could exacerbate financial stability risks.
Citi: Citi Economics calls for a 25bps OPR cut to 1.50%. The team argues a cut is premised on the need to cushion
aggregate demand against a wider than expected negative output gap. Even so, the cut is a close call (60%
probability), with the relaxation of EPF withdrawal criteria from March 8 effectively turning the scheme from a
targeted policy measure to a broad based aggregate demand cushion.
Goldman Sachs: We expect Bank Negara Malaysia (BNM) to keep the overnight policy rate unchanged at 1.75%
at its meeting next week. On February 18, the government eased movement restrictions in all provinces except in
Selangor, Johor, Penang and Kuala Lumpur on the back of improving COVID-19 statistics. Earlier this week, the
country also started its vaccination program which is expected to boost domestic sentiment going forward. As the
economy recovers and headline inflation rebounds sharply on the back of rising transportation costs, we expect
BNM to keep policy rates unchanged this year. However, there is a risk that BNM cuts policy rates further after the
sequential growth contraction in Q4 2020. A renewed tightening in containment policy or slower-than-expected
pace of vaccinations may also skew policy outcomes in a more dovish direction this year.
ING: Malaysia's central bank has been defying the easing pressure even as tighter Covid-19 movement restrictions
are poised to hit the economy hard in the current quarter. It should have more reasons to do so following the
release of January CPI data showing a significant improvement in inflation, to -0.2% YoY from -1.4% in December.
We have dropped our call of a 25bp rate cut in March and shifted to a stable policy view for the rest of the year.
Morgan Stanley: We expect BNM to stand pat at the upcoming MPC meeting next week. Recall that BNM eased
by 125bps last year to support growth. Going forward, we do not have further rate cuts penciled into our base case.
This is because we expect the economy to stage a cyclical recovery this year. Policy makers have already relaxed
the Covid-19 restrictions for most states, placing them under the more lenient conditional movement control order
(CMCO) and recovery movement control order (RMCO). Moreover, while the movement control order (MCO) for
Kuala Lumpur, Selangor, Johor and Penang was extended until March 4, we note that most businesses are
allowed to continue to operate, and, in fact, policy makers have relaxed the MCO restrictions further during this
latest MCO extension. In addition, we think the private sector has likely adapted its behavior to the new Covid-19
normal, and the vaccine rollout in Malaysia, which has begun this week, should also help to reduce private sector
4|Page
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBrisk aversion. Furthermore, Malaysia’s exports have already recovered back to pre-Covid levels, and we think the
improving global environment and an accommodative policy stance would lend further support to growth.
Scotiabank: The next monetary policy announcement in Malaysia is scheduled for March 4. We expect the
Overnight Policy Rate to be left unchanged at 1.75% as the Malaysian economy gradually recovers from the
adverse impact of the recent surge in COVID-19 infections.
UOB: We expect BNM to keep the OPR unchanged at 1.75% at the coming monetary policy meeting. Despite
weakness in GDP and extension of MCO 2.0, we think BNM is less inclined to use broad and blunt monetary policy
tools at this stage. BNM has kept its key policy rate on hold since September 2020.
5|Page
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBYou can also read
