KUALA LUMPUR: Bank Negara Malaysia could possibly cut interest rates again in November following rising Covid-19 cases and stalling economic recovery, Standard Chartered Bank said.
Standard Chartered also said the imposition of Conditional Movement Control Order (CMCO) on certain states for two weeks would shave 0.4 percentage point off Malaysia's 2020 gross domestic product (GDP) growth.
"The resurgence in Covid-19 infections and latest high-frequency data suggest that the economic recovery momentum is stalling, with only a moderate improvement in the labour market.
"Bank Negara may be less neutral now and we see a risk of the central bank cutting rates again in November. Nevertheless, we maintain our call for unchanged policy rates," Standard Chartered said in a report today.
The bank noted that the rates were already at a historical low and further cuts might have only a limited marginal impact with pandemic restrictions in place, and reduce future policy space.
"We also think that a contained resurgence in infections and the pace of economic activity may not slow down as much as in the previous CMCO phase.
"The key will be the effect on consumer and business sentiment, but this will depend on the developing local infection situation. Further broadening or extension of the CMCO may result in a more pre-emptive decision by the central bank," it added.
Standard Chartered kept its 2020 GDP forecast at a 4.4 per cent contraction but acknowledged downside risks to its forecast.
"Assuming that its base case did not incorporate a re-imposition of restrictive measures, the two-week CMCO may reduce the 2020 median GDP forecast to -5.0 per cent, still within the forecast range," it said.
The official growth forecast for Malaysia is -5.5 per cent to -3.5 per cent.