Malaysia central bank keeps accommodative monetary stance amid new lockdown

SINGAPORE (ICIS)–Malaysia’s central bank decided on Wednesday to maintain an accommodative monetary policy as it acknowledges that new coronavirus-related restrictions will hit near-term economic performance.

Its overnight policy interest rate was kept at 1.75%.

“Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the dynamics of the pandemic and potential challenges that might affect the roll-out of vaccines both globally and domestically,” Bank Negara Malaysia said in a statement.

Rising coronavirus cases in the southeast Asian country prompted a limited lockdown in Kuala Lumpur and five states initially for two weeks from 13 January, with a national emergency declared.

The lockdown, called a movement control order (MCO), will be expanded to all other states except Sarawak for two weeks from 22 January. A nationwide travel ban is also in place.

“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.

Nonetheless, the economic impact of the new lockdown is not expected to be as severe as the one implemented in 2020.

“The current MCO allows for more economic activity with five essential sectors allowed to operate, and it is not a full country lockdown with very limited movement,” Singapore-based UOB Global Economics and Market Research said in a note dated 19 January.

Manufacturing, plantations and construction qualify as essential sectors.

“The government expects a supportive export sector, alongside the rollout of economic stimulus packages, Budget 2021, and PERMAI,” it said.

PERMAI refers to the Malaysian ringgit (M$) 15bn ($3.7bn) economic aid package or Malaysian Economic and Rakyat Protection Assistance Package announced early this week.

Full-year 2020 GDP growth is expected to be at the lower end of its forecast range as recovery momentum was affected by the introduction of containment measures triggered by a resurgence in coronavirus cases.

“As a result, growth for 2020 is expected to be near the lower end of the earlier forecasted range,” Bank Negara Malaysia said.

The central bank forecasts a 3.5% to 5.5% contraction in the Malaysian economy for 2020.

Economic performance should improve starting the second quarter of 2021 “driven by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new manufacturing and mining facilities,” it said.

Market sentiment will also be lifted by the expected roll-out of coronavirus vaccines in the coming months, it said.

As of 19 January, Malaysia has a total of 161,740 confirmed coronavirus cases, with 605 deaths, according to World Health Organization (WHO) data.

($1 = M$4.04)

Focus article by Pearl Bantillo

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