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AmBank Research: OPR cut should potentially help put lid on declining business sentiments

KUALA LUMPUR (Jan 23): The overnight policy rate (OPR) cut should potentially help put a lid on the declining business and consumer sentiments, according to AmBank Group chief economist and head of research Dr Anthony Dass.

In an economics note today, AmBank Group Research said Bank Negara Malaysia's (pictured) decision to cut the OPR by 25 basis points (bps) to 2.75% is seen as a move "ahead of the curve" and can be viewed positively.

Dass, who is also an adjunct professor in economics at the University of New England, Sydney, Australia, said room for further rate cuts remains if the domestic and/or external environment persists in volatility, which would raise the downside risk on the economy and capital market.

"With limited fiscal flexibility and moderate exports, the bigger role will come from monetary policy. It is to ensure private consumption remains as the growth anchor in 2020," he said.

Dass said this is in line with the lacklustre economic environment in Malaysia.

"Loans growth has been softening. Manufacturing is in recession and has yet to bottom out. Labour market is getting tougher.

"There is growing downside risk on the services sector. If this trend continues, private consumption, which is the growth anchor for 2020, may not be able to yield fruitful results. Drag will eat into the overall business activities," he said.

Dass added that domestic inflation is likely to average circa 1.8% to 2% from a low base of 0.7% for 2019, which can be attributed mainly to higher cost versus lower demand.

Furthermore, he said global uncertainty, whilst tamed in recent days, is not removed.

Dass said with limited fiscal flexibility and moderate exports, the bigger role will come from monetary policy.

"It is to ensure private consumption remains as the growth anchor in 2020.

"So, another 25bps to 50bps cut from 2.75% is still on our cards and can happen either end 1H2020 or 2H2020, much depends on the potential incoming data.

"Should there be a 50bps cut, it is unlikely for the economy to experience a 'negative real returns'," he said.

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