KUALA LUMPUR: Bank Negara Malaysia is not expected to review its key interest rate at its second Monetary Policy Committee (MPC) meeting of the year on May 6, economists said.
But they said while the window for further easing might have closed for now, there remained a small tail risk that the central bank might just do so.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said there was no urgency for the central bank to cut the Overnight Policy Rate (OPR) for now.
"At the current juncture, we do not see Bank Negara would want to alter the level of OPR as the present rate has been supportive to the economy," he told the New Straits Times (NST) today.
Mohd Afzanizam said there was always a chance that the central bank might want to add more to the level of policy accommodation.
"There are signs the economic recovery gaining good traction especially the external demand when the March exports jumped more than 30 per cent and the shortages in microchips within the semiconductor industries would benefit Malaysia's manufacturers," he added.
Malaysian Rating Corp Bhd senior economist and head of research Firdaos Rosli concurred that Bank Negara would hold the rate steady.
"We posited that Bank Negara will keep the rate at 1.75 per cent throughout the year to remain accommodative," he told the NST.
If it was to make a revision, the central bank would likely give some early signals to manage market expectations, Firdaos added.
"The possibilities, however, are remote at this point in time. Monetary policy is a blunt policy instrument. The ball is in the government's court to stimulate the economy," he added.
OCBC Bank economist Wellian Wiranto said Bank Negara's MPC meeting on Thursday was against the backdrop of Covid-19 resurgence that threatened Malaysia's economic recovery.
"While we and the market do not expect the central bank to cut its OPR on balance – it held rate unchanged during the previous virus resurgence in January – there remains a small tail risk that it might just do so.
"At the very least, it would start to flag some of the downside risks more vocally and signal that it continues to have some space for further accommodative policy if needed," Wellian said.
HSBC Global Research Asean chief economist Joseph Incalcaterra does not expect Bank Negara to review its OPR on Thursday but expects the start of a gradual normalisation cycle by the end of 2022, at the earliest.
Incalcaterra said there was a high bar for further monetary policy accommodation, despite downside risks to Bank Negara's economic growth forecast.
"The central bank can count on manufacturing growth to provide support to the economy and employment, while the government has secured enough vaccine doses to enable the country to achieve some form of herd immunity by year-end 2021, despite supply challenges and signs of vaccine hesitancy in the short term," he said in a report today.
He said headline inflation was likely to continue rising in 2021 due to base effects and higher energy prices.
"While Bank Negara can look through this volatility, it nonetheless reduces the likelihood of further easing as the real policy rate buffer evaporates."
He said Bank Negara remained focused on elevated household debt growth, and could rely on still-expansionary fiscal policy to provide targeted support to the economy.
Incalcaterra said policymaker expectations for growth to rebound by 6.0-7.5 per cent appeared excessively optimistic, given the clear deterioration in consumer mobility.
But it would also be a mistake to turn too pessimistic, he added.
"Activity in Malaysia's manufacturing and export sectors continues to roar in line with our expectation that export growth would accelerate due to soaring demand for Malaysia's semiconductor exports, thanks in part to a large share of automotive chip production coupled, along with higher commodity export volumes," he said.