THE Covid-19 pandemic brought four cuts to the overnight policy rate (OPR) in less than a year, to a record low of 1.75%, and questions remain on whether a further cut will be made with Bank Negara Malaysia’s (BNM) monetary policy committee (MPC) that meets today.

Economists are divided on whether another cut is on the horizon, given that the central bank has slashed a total of 125 basis points this year alone.

Socio-Economic Research Centre executive director Lee Heng Guie told The Malaysian Insight he does not anticipate another cut as the economy is showing some signs of recovery, albeit gradually.

“I think we have passed the worst stage.”

At this juncture, he said there are other supporting factors to help the economy, such as the government’s wage subsidy programme, the targeted loan moratorium and the savings on adjustments to payments for borrowings due to the earlier OPR cuts.

“We must bear in mind we cannot keep on cutting rates like a lot of other countries did way before the crisis, where they have gone down to negative or zero, like in the case of Japan and in the European Union. A lot of countries have not fully recovered.

“I hope we are not going to the stage where we push rates to zero, as there will be other measures the government can think about, such as on the fiscal side.

“There’s only so much we can do if we keep relying on interest rates,” he added.

Lee said the government has buffers on the fiscal side with the increase in the debt ceiling.

“Most importantly, they have to find the right target sectors to spend the budget,” he said.

Senior Fellow at the Malaysian Institute of Economic Research Dr Shankaran Nambiar has a different view. He believes another rate cut is possible by year-end, but not necessarily this month.

“If the Covid-19 numbers are anything to go by, the increase in cases is not a positive indicator of the pandemic’s trajectory.

“This is compounded by export numbers which, in July, did not match the uptrend in June. It would not be reasonable to expect export figures to rebound so quickly.

“BNM will also feel pressured to make loan repayments softer and help keep growth rates a touch more robust.  

“Narrow bank profits, conservatism and a reluctance to go beyond the already unusual cuts may hold the central bank back (from a rate cut),” Shankaran said.

AmInvestment Bank Research said in a note on September 8, that another rate cut can be expected in today’s MPC meeting, bringing the benchmark interest rate down to 1.50%.

In contrast, Standard Chartered expects the central bank to take a wait and see approach and maintain the OPR rate, so as to assess the country’s recovery in the second half of the year. – September 10, 2020.