KUALA LUMPUR: Bank Negara Malaysia could start raising its key interest rate to a more normal level as early as the final quarter of the year, said MIDF Research.
The firm said no further easing of monetary was needed because Bank Negara's cumulative 125 basis points cuts in its Overnight Policy Rate (OPR) last year would continue to provide support to the economy.
"Going forward, we expect the vaccine administration will boost sentiment and support for the economy to rebound back to positive growth this year.
"With growth to pick later this year and inflation to trend higher, we anticipate for Bank Negara to begin raising OPR to a more normal level as early as in the final quarter this year," MIDF Research said when commenting on the central bank's decision to maintain the OPR at 1.75 per cent today.
"The decision is in line with our expectation. Bank Negara summarises that the global economy remains on a recovery path, although the recent spikes in Covid-19 cases led to tighter restrictions, causing activities to slow in several major economies.
"The vaccination programmes that have been rolled out globally will be one of the key factors that will support the global economy to pick up later this year."
On the domestic economy, MIDF Research said Bank Negara expected for the economy to pick up from 2Q of 2021 when the current restrictions from the imposition of Movement Control Order 2.0 will be eased.
"In other words, the recent tightening of restriction is a temporary challenge to the economy, particularly in the early part of 2021.
"Overall, the ongoing pandemic remains a key downside risk to growth outlook, as growth for Malaysia and the global economy could be dragged down by potential resurgence of Covid-19 infections and the possibility of a slower roll-out of Covid-19 vaccines," the firm added.
Malaysian Rating Corp Bhd said leaving the OPR unchanged at a historical low of 1.75 per cent was a prudent pause, given that the resurgence of Covid-19 cases had triggered another round of MCO.
This, in turn, would complicate the economy's recovery outlook in the short term.
"We believe that Bank Negara's move to hold the present rate is justified. The central bank considers that the adverse impact of the re-introduction of the MCO will be impactful but less severe than that experienced in 2020. We concur with Bank Negara's view and we are still bullish on a rebound if the MCO is lifted before thes econd quarter of 2021."
MARC said with the OPR on hold, it would lend some support to the ringgit as the relatively high yields continued to attract foreign portfolio interest into the Malaysian bond market.
"Furthermore, taking the cue from the Permai stimulus announcement on Monday, we believe that the present fiscal push through broad wage subsidies is adequate in addressing the elevated unemployment rate. The existing stimulus appears to be a suitable countercyclical measure towards recovery," it added.