Bank Negara Holds Key Rate Steady Warns Of Downside Risks From Covid 19

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Malaysia's central bank left its key benchmark interest rate unchanged today but kept the door ajar for more monetary stimulus as the country grapples with fresh lockdowns and surging coronavirus cases.
Bank Negara Malaysia kept its overnight policy rate at a record low of 1.75 percent. Five out of 15 economists in a Reuters poll had expected the move, but a majority had forecast a rate cut.
BNM said its current monetary stance is "appropriate and accommodative", expecting fresh coronavirus restrictions imposed last week to have a smaller impact on the economy than last year's national lockdown.
But it said it remained committed "to utilise its policy levers as appropriate" to aid a sustainable recovery, flagging the potential downside risks from any further surge in coronavirus cases or delay in vaccination roll-outs.
"Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth," BNM said.
The benchmark stock index KLSE rose 0.64 percent and the ringgit strengthened 0.15 percent after the central bank announcement.
Malaysia suffered its first economic recession in over a decade last year as Covid-19 hit.
Although the economy showed signs of rebounding in the third quarter as coronavirus curbs eased, a worsening outbreak prompted the government to impose fresh lockdowns in the capital and five states last week.
"For 2021, while near-term growth will be affected by the re-introduction of stricter containment measures, the impact will be less severe than that experienced in 2020," the central bank said, adding that the growth trajectory is projected to improve "from the second quarter onwards."
The government's decision to allow key sectors to continue operating during the current lockdown would help limit its economic fallout, said Alex Holmes, Asia economist for Capital Economics.
"But the economy will still be hit hard... given the poor near-term outlook for the economy, we think further easing is likely," Holmes said in a research note.
He expected a 25 basis point cut to BNM's benchmark rate at its next meeting in March.
In a separate statement, BNM said it will extend the duration of flexibility for banking institutions to use government bonds to meet their statutory reserve requirements to Dec 31, 2022, from an earlier cut-off date of May 31 this year. The move is likely to boost liquidity in the banking system.
- Reuters

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