RESEARCH HOUSES MIXED ON 2021 OPR OUTLOOK

KUALA LUMPUR, Nov 26 -- Maybank Investment Bank Bhd (Maybank IB) expects the Overnight Policy Rate (OPR) to stay at 1.75 per cent until end-2021 after Malaysia's Consumer Price Index (CPI) shrank 1.5 per cent year-on-year (y-o-y) in October 2020.

"But this is a 'dovish pause' amid downside and tail risks to economic outlook," the investment bank said in a note today.

Meanwhile, Kenanga Research assigned a 50 per cent probability that Bank Negara Malaysia (BNM) would cut the OPR by 25 basis points at the next Monetary Policy Committee meeting in January 2021.

"This is due to the continuing surge in local COVID-19 infections and the extension of Conditional Movement Control Order (CMCO) measures," it said in a note today.

The Department of Statistics Malaysia released the CPI data on Wednesday, showing that the decrease in the overall CPI in October 2020 was attributed to the decline in transport (-10.2 per cent), housing, water, electricity, gas & other fuels (-3.0 per cent), and clothing & footwear (-0.4 per cent) which contributed 41.6 per cent to overall weight.

With that, Maybank IB said it continues to expect negative monthly inflation rate for the rest of the year amid the contraction in real gross domestic product (GDP) and lower average global crude oil (Brent) price, the y-o-y effect of the 18 per cent reduction in PLUS tolled highways since Feb 1, 2020, and electricity bill discounts from Apr 2020 to Dec 2020 as part of government measures to assist households and businesses amid the recession triggered by the COVID19 pandemic.

It has forecast Malaysia's GDP to contract 5.4 per cent in 2020 compared with a growth of 4.3 per cent in 2019, while Brent crude is expected to average at US$40-45 per barrel in this year versus US$64 per barrel last year.

Maybank IB also maintained its “conservative” annual real GDP projection of -5.4 per cent for 2020 and +5.1per cent for 2021 as outlook would depend on the COVID-19 pandemic, politics and policies. 

"This year’s full-year GDP forecast and (first) nine months of 2020 (9M2020: -6.4 y-o-y) actual imply the fourth quarter of 2020 GDP forecast of -2.8 per cent y-o-y.

"That reflects 'speed bumps' in the recovery process amid COVID-19’s third wave and the second round of CMCO since mid-October 2020," it said.

Meanwhile, Kenanga Research has revised downwards its 2020 CPI forecast to -1.0 per cent from -0.7 per cent compared with 0.7 per cent in 2019, on the back of renewed deflationary threat amid worsening COVID-19 situation.

"The government’s decision to reimpose the CMCO in most of the states in Malaysia to prevent the COVID-19 situation from becoming worse may likely hurt consumer spending in the near term. 

"However, rising commodity prices especially crude oil due to vaccine hopes may help to partially reduce deflationary pressures in the coming months," it said.

-- BERNAMA