KUALA LUMPUR: OCBC Bank expects Bank Negara Malaysia to make its first interest rate cut of 2021 in the second quarter (Q2) when economic prints start to shift less decisively upward than anticipated.
OCBC economist Wellian Wiranto said the economic recovery was coming and in large part driven by the start of Covid-19 vaccination efforts especially in major economies.
"But we see the ongoing challenges of case resurgence hurting things more – even if a lot less than in 2020 – and we have probably attached a lower probability of a smooth vaccine rollout," he said, when commenting on Bank Negara's move to keep its Overnight Policy Rate (OPR) at 1.75 per cent today.
Wellian said Malaysia had seen quite a lot recently, with the re-imposition of the Movement Control Order (MCO) on all states except Sarawak and the declaration of a state of emergency.
"Perhaps to counterbalance all that adrenaline rush, today's Bank Negara decision has a decidedly staid air to it."
He said against the backdrop of an economic outlook that remained rather upbeat despite the changing circumstances, it did not look like Bank Negara was in a hurry to cut its OPR just yet.
"We are less assured than the central bank may be, in how growth rate can pick up all that effortlessly in Q2 on the back of mass vaccination efforts, however.
"The apparent baseline assumption of a smooth roll-out of vaccines both globally and domestically – and how this might naturally lead to a steady growth uptick may come to be tested, as well. Such downside risks are well-flagged in the statement, and indeed, the MPC is keen to leave itself some wiggle room for action should the situation turn awry," he said.
On the inflation front, Wellian said while Bank Negara's statement continued to note that the "underlying inflation is expected to remain subdued amid continued spare capacity in the economy," it offered that "the outlook, however, is subject to global oil and commodity price developments."
"This suggests that, even though the inflation outlook is still far from being a concern for Bank Negara, it is no longer as easy to just pay cursory attention to it this year due to the recent run-up in the prices of seemingly all commodities," he added.