Another rate cut early March, stimulus package end-February?

KUALA LUMPUR: The expectation of a monetary policy adjustment, on top of a fiscal stimulus package, to boost Malaysia’s economy soon is getting higher.

More quarters have backed the notion that another round of interest rate cut by Bank Negara Malaysia was looking more certain after the local economy posted its slowest growth in a decade at 4.3 per cent last year.

The central bank is widely expected to adjust downwards its Overnight Policy Rate (OPR) on March 3 at its Monetary Policy Committee meeting.

US investment bank JP Morgan said the macroeconomic fallout from the coronavirus outbreak had raised the bias for policy easing amid ongoing fiscal consolidation efforts.

The bank expects a 25 basis point reduction soon to mitigate the fallout from external shocks amid limited fiscal space, bringing the OPR level to 2.50 per cent from 2,75 per cent currently.

Malaysian Rating Corp Bhd said given the material impact of the outbreak on the Chinese and global economies, Malaysia would likely arm itself with both fiscal and monetary arsenals this year.

“On the fiscal side, the government is already planning to introduce a stimulus package in the near term. In our view, these efforts should be applauded,” MARC chief economist Nor Zahidi Alias said today.

Both fiscal and monetary policies would act to prevent further downside to the country’s growth in 2020, he added.

Economic Affairs Minister Datuk Seri Azmin Ali, in a statement today, said the stimulus package would be unveiled by end of the month.

Azmi and Finance Minister Lim Guan Eng had previously said the main thrusts of the stimulus were tourism, retail and airlines.

On Tuesday, OCBC Bank economist Wellian Wiranto said having surprised the market with its “pre-emptive” cut last month, there was a distinct possibility for Bank Negara to cut rate again, and soon.

This would be especially so if the commodities production did not pick up.

He also said that the central bank might revise its current 4.3-4.8 per cent GDP forecast this year.

Even Bank Negara governor Datuk Nor Shamsiah Mohd Yunus had acknowledged that there was ample room for monetary policy adjustment.

Meanwhile, JP Morgan said despite Malaysia’s soft headline print, domestic demand remained firm, driven by a solid expansion in consumer spending.

While the strength in domestic demand was broadly-based, the sustained strength in private consumption in the fourth quarter of 2019 was striking, which the central bank had noted was driven by positive income and employment growth trends.

JP Morgan said the monetary easing was imminent given the potential of a material shock to GDP growth in the first half of 2020 that the current COVID-19 outbreak posed.

The bank pointed to Malaysia’s integrated role in the regional manufacturing supply chain and tourism exposure to China over the past two decades.

It said the depth and breadth of the outbreak across borders in recent weeks could pose further downside risk.

Meanwhile, Norzahidi said a slowdown in global economic activity would most likely affect Malaysia’s growth in 2020 given that it was an open economy.

The coronavirus outbreak had the potential of impacting the global economy in a manner greater than initially anticipated, he added.

“Firstly, the severity of the outbreak exceeds the previous SARS outbreak in 2003. Secondly, the size and contribution of the Chinese economy to the world economy is far greater now than before.

“Hence, given the increasing downside risk of the Malaysian economy, we think that another policy rate adjustment by Bank Negara is now looking more certain.”