BNM maintains OPR at 1.75%


According to Bank Negara Malaysia (BNM), it has kept the overnight policy rate (OPR) unchanged at 1.75%, following the Monetary Policy Committee (MPC) meeting today, as it noted the strengthening in the global economy supported by improvements in manufacturing and services activity. However, the pace of recovery varies across countries, pointing out that economies making better progress in their vaccination programmes have been able to ease containment measures, enabling a swift recovery in domestic activity. Financial conditions remain supportive of growth. Overall, the balance of risks to the growth outlook remains tilted to the downside, due mainly to uncertainty over the path of the pandemic as well as potential risks of heightened financial market volatility. For Malaysia, the better-than-expected economic activity in the first quarter of 2021 continued into April, as reflected by the latest indicators, particularly exports, retail spending and labour market conditions. The re-imposition of nationwide containment measures, however, will dampen growth momentum, with the degree of economic impact highly dependent on the stringency and duration of containment measures. Despite that, continued allowances for essential economic sectors to operate, albeit at a reduced capacity, and higher adaptability to remote work, automation and digitalisation will partly mitigate the impact of restrictions. The various policy support packages will alleviate some of the financial burdens of households and businesses. Favourable external demand conditions will continue to provide a lift to growth. Going forward, the gradual relaxation of containment measures, alongside the rapid progress of the domestic vaccination programme and continued strength in external demand will provide support for the growth recovery into 2022. The growth outlook, however, remains subject to significant downside risks, due mainly to factors that could lead to a delay in the easing of containment measures or imposition of tighter containment measures, and a weaker-than-expected global growth recovery. The materialisation of these risks could undermine the growth recovery. As it had expected, headline inflation had spiked recently due to the low base effect of fuel prices in the second quarter of last year, although the spike is transitory with headline inflation to moderate in the near term as the base effect dissipates. Headline inflation is projected to average closer to the lower bound of the forecast range for 2021, while underlying inflation is expected to remain subdued, averaging between 0.5% and 1.5% for the year, amid continued spare capacity in the economy, although the outlook is subject to global commodity price developments. The MPC considers the stance of monetary policy to be appropriate and accommodative. In addition, fiscal and financial measures will continue to cushion the economic impact on businesses and households and provide support to economic activity. Given the uncertainties surrounding the pandemic, the stance of monetary policy will continue to 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 foster enabling conditions for a sustainable economic recovery. 

2021 GDP growth at 5-6% for Malaysia – Kenanga Investment Bank 

According to Kenanga Investment Bank head of economic research Wan Suhaimie Wan Mohd Saidie, the bank has settled on a 5-6% gross domestic product (GDP) expansion projection for 2021, taking into account the economy’s recent performance and the Covid-19 situation. The forecast is predicated on an improvement in private consumption from second-half 2021 (H2’21) onwards. The bank anticipated private consumption to grow by 6.7% year-on-year (y-o-y) in the second half compared with 5% y-o-y in the first half of the year. At Kenanga’s Q3 2021 Market Outlook virtual briefing, he said that it is a story of two halves. Initially, they were looking at a higher first half but now they are looking at a higher second half because of the recovery and the intensity of Covid-19’s rise. Previously, they had projected 3.9% growth for 2021 then revised the forecast up to 6.5% before bringing it down to the current 5-6%. The forecast of 5-6% growth is still below the government’s unrevised expectation of 6-7.5%. Should the country reach phase two of the recovery, between August and September, hopefully this will reduce the number of cases and the government will gradually reopen the economy. For now it is still 50-50, giving credit to the government but there is a possibility that they might revise that 5-6% growth. With regard to services, the sector is still underperforming with an anticipated growth of 5% equivalent to a 2.9% contribution to GDP growth of 5-6%, although it will be far higher than the 5.5% decline registered in the previous year. However, this is still below the three-year average of more than 6% experienced pre-Covid. We still underperform but hopefully this will gradually change once the economy reopens with the restart of travel and tourism, which will take another six to 12 months. Meanwhile the manufacturing sector has been a saviour of the Malaysian economy and it is projected to grow by almost 8% this year, contributing 1.8% to GDP growth, primarily due to the high export demand for electric & electronics goods, commodities and rubber products, particularly gloves. As for second quarter GDP, he projected a growth figure of about 11% or in the lower teens. However, this will translate into negative quarter-on-quarter growth, signifying a technical recession. The growth projection of 5-6% translates into a W-shaped recovery, underpinned by broad-based improvements across components and sectors, lifted by various policy measures, stronger external demand and wider vaccine rollout. However, there may be a need to revise downwards, should the government extend the MCO after July 16. 

Eye On The Markets 

This week, on Thursday (8July), the Ringgit was 4.1815 against the USD from 4.1565 on Monday (5July). Meanwhile, the Ringgit was 3.0928 to the Sing Dollar on Thursday (8July). On Monday (5July), the FBM KLCI opened at 1534.04. As at Friday (9July) 10:00am, the FBM KLCI is down 19.83 points for the week at 1514.21. Over in US, the overnight Dow Jones Industrial Average closed down 259.86 points (-0.75%) to 34,421.93 whilst the NASDAQ shed 105.3 points (-0.72%) to 14,559.80.  

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