OPR cut possibility high to reduce economic fallout risk, say economist

Kuala Lumpur, Sept 9 - There is a possibility of another round of overnight policy rate (OPR) cut by 25 basis points before year-end in the forthcoming Bank Negara Malaysia (BNM)'s monetary policy review, according to some economists.

They said a fast-changing macroeconomic environment caused by the Covid-19 outbreak would encourage BNM to further intervene proactively.

Globally, most central banks are heading for a lower interest rate regime in order to buttress the macroeconomic stability for their economies.

Bank Islam Malaysia Bhd Chief Economist Mohd Afzanizam Abdul Rashid expects BNM to defer the OPR cut in the MPC meeting tomorrow as recent economic data such as vehicle sales, exports and Purchasing Managers' Index (PMI) indices have been quite decent.

This indicates less urgency by BNM, he said, considering that the benchmark rate has been reduced by a total 125 basis points between January and July this year and it being already at an all-time low.

"Bank Negara has been proactive in supporting the economy via expansionary monetary policies". "So, this could be the main reason why markets expect an OPR cut to happen at the final Monetary Policy Committee (MPC) meeting in November 2020," he told Bernama.

The central bank has reduced the OPR four times this year bringing it to 1.75 per cent, the lowest level recorded since 2004.The MPC will meet tomorrow before holding the last meeting on November 3.

As to whether another OPR cut could be a factor of consideration by the MPC to help the majority of borrowers, Afzanizam was confident it could help the latter. The central bank, shan said, has used tactical moves by controlling price inflation with appreciating ringgit and prudent monetary tools to make an impact on the economy.

In terms of growth, he said economists expect the Malaysian economy to stabilise and aggregate demand to become steady by December 2020.

Answer the following question based on the article above: -

a)"Bank Negara has been proactive in supporting the economy via expansionary monetary policies".

Based on the statement above, Bank Negara Malaysia have implemented expansionary monetary policy to support the Malaysian economy. Justify your answer with FOUR (4) instrument tools under this policy.

(16 marks)

b)"The central bank, shan said, has used tactical moves by controlling price inflation with appreciating ringgit and prudent monetary tools to make an impact on the economy".

(4 marks)

Based on the statement above, identify and explain the ONE (1) function mentioned.

[Total: 20 marks]