It said Malaysia’s recovery rate is now among the highest in the world whilst the number of new infections has been almost negligible, giving the authorities opportunity to devote resources into rebuilding and reforming the economy amid the new-normal post-COVID-19.
“Our engine of growth is expected to recover more strongly in the 3Q before accelerating further in 4Q, barring unforeseen circumstances like a new outbreak of new cases that could lead to periods of closure (again), persistent weakness in the labour market and weaker-than-expected recovery in the global growth,” it said in a research note today.
However, it said a too-low interest rate environment for too long may be counter-productive as it could also encourage excessive risk-taking in speculative investment, a seed for inflation to spiral.
“Successive stimulus programmes rolled out since February should produce tangible results in the 3Q which forms the basis of our expectation for interest rate normalisation in 1H 2021,” it said.
Yesterday, Bank Negara Malaysia (BNM) slashed the overnight policy rate (OPR) by another 25 basis points at its Monetary Policy Committee’s (MPC) meeting.
In its fourth meeting of the year, the MPC reduced the OPR to 1.75 per cent, a record low since the floor was set in 2004.
Public Investment Bank said further policy cut may not produce the desired results as the economy has been dampened by weak demand due to the weak job market which requires different policy prescriptions to address.
“The OPR is expected to remain status quo until the end of the year barring unforeseen circumstances,” it added.
Separately, Affin Hwang Capital believed BNM will likely leave its OPR unchanged at 1.75 per cent in the remaining two MPC meetings on Sept 10 and Nov 3 later this year, unless the COVID-19 outbreak in the country unexpectedly takes a turn for the worse.
Meanwhile, Maybank IB Research expects the OPR to remain at this record low until end-2021, but cautioned that this is a “dovish pause” given the downside risk to the economic outlook despite the view of this recession bottoming in 2Q 2020.
Kenanga Investment Bank Bhd said it expects BNM may embark on another 25 bps cut, bringing the OPR to a fresh record low of 1.5 per cent at the next policy meeting in September.
With such levels of uncertainties, the door for further monetary easing remains open, said Ambank Research.
“There is still ample room for BNM to reduce the policy rate even after slashing the OPR by 125 bps to 1.75 per cent now.
“With the monetary policy continuing to play an important role, and supported by the fiscal and financial measures, the base case for 2020 gross domestic product (GDP) is that it should contract around 2 per cent with the downside at 5 per cent,” it said.