Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that high-frequency data such as exports and the Consumer Price Index indicate that the economy is recovering.
Malaysia’s trade surplus soared by 38% year-on-year (y-o-y) to RM16.6 billion in January, while total trade widened by 4.1% y-o-y to RM162.6 billion.
The country’s total exports continued its positive momentum for the fifth consecutive month, expanding 6.6% y-o-y to RM89.6 billion in January, while imports continued to record an increase of 1.3% to RM73 billion.
“The bond market also suggests that rates would be higher going forward, with yields on benchmark securities having risen quite substantially.
“Nevertheless, we believe that the option for BNM to cut the OPR is still open,” he told Bernama, noting that the country’s economic recovery was still tentative as the vaccination programme is in its early stages.
Malaysia’s January headline inflation came in better than expected, dipping 0.2% to 122.1 from 122.4 a year earlier, he said, adding that the current rates are supportive of the economy and any decision with regards to the OPR would obviously be based on the incoming data.
Concurring with him, Axi chief global market strategist Stephen Innes said BNM was looking through the movement control order (MCO) and Covid-19 wave to a second quarter recovery, and Axi thinks the easing cycle is over.
“I think the next move for global central banks, including BNM, will be a rate hike, although that will be well into 2023.
“In the meantime, BNM is still holding from cutting rates until it sees how the economy performs as the vaccine rolls out and mobility opens up more economic recovery,” he said.
In July last year, BNM reduced the OPR to 1.75%, a record low since the floor was set in 2004. It has since maintained the rate.
Innes said when mobility opens up, the economy tends to recover well on its own; but if it doesn’t respond on its own, then BNM still has the option to cut rates in early 2022.
“But I think that is very unlikely as export and commodity recovery will carry the economy as the domestic economy recovers,” Innes added.
Laurence Todd, Institute for Democracy and Economic Affairs research director, also expects the OPR to remain unchanged.
He said it was too soon to increase the rate, although there are reasons to be more hopeful for the economy in 2021.
“The prospects for 2021 are certainly better than 2020, with the vaccine roll-out. However, there are still risks. Although some countries have made rapid progress with the vaccine, in some countries it is happening slowly, and there is a potential for further disruption and resurgences.
UOB Malaysia senior economist Julia Goh said the bank thinks BNM is less inclined to use broad and blunt monetary policy tools at this stage, despite weakness in gross domestic product and extension of MCO 2.0.
“Hence, we expect BNM to keep the OPR unchanged at 1.75% at the coming monetary policy meeting,” she said.