Malaysia's latest OPR cut needed to cushion COVID blow

The central bank slashed OPR to 2.5% amidst the virus’ global and domestic impacts.

Malaysia’s latest overnight policy rate (OPR) cut had largely been expected as a fiscal-monetary policy mix is needed to soften the impact of COVID-19, according to a Malaysia Rating Corporation Berhad (MARC) report.

The Bank Negara Malaysia (BNM) slashed the OPR by another 25bp to 2.5% during its monetary policy committee meet on 3 March, due to concerns over the domestic and global effect of the coronavirus. BNM said there is now “greater risk aversion, resulting in tighter financial conditions and higher volatility in the market,” adding that household spending and investment growth recovery are likely to be muted.

The rate cut complements the $4.79b (MYR20b) fiscal stimulus package announced February, with measures such as cash handouts and a $479m (MYR2b) SME relief, MARC said.

“Our estimates show that a 0.5 pp moderation in China’s GDP growth will likely reduce Malaysia’s GDP growth by 0.2pp. Meanwhile, Malaysia’s GDP growth could moderate by roughly 0.3pp, if as currently estimated by the IMF, world economic growth falls from 3.3% to 3.0%,” the report said.

The FTSE Bursa Malaysia KLCI rebounded slightly by 0.8% to 1,478.64 after the latest OPR cut. However, market sentiment remains weak despite the recent government stimulus measures lined up for this year.. The FBM KLCI had fallen by 8.2% from its peak of 1,611.38 back in early January.

Photo courtesy of Wikimedia Commons.