Bank Negara Malaysia to ‘wait and see’ on MCO 2.0 and state of emergency

Standard Chartered 2021 Global Research Briefing

The panel at the Standard Chartered 2021 Global Research Briefing has highlighted that Bank Negara Malaysia (BNM) and foreign investors will share a similar approach which is to ‘wait and see’ on the situations in Malaysia.

Malaysian Prime Minister Tan Sri Muhyiddin Yassin announced on January 11 that the Movement Control Order (MCO) will be re-imposed in five states and three federal territories due to the worsening Covid-19 situation.

He further announced a state of emergency on January 12 until August 1.

These states and federal territories account for 66 percent of gross domestic production (GDP) and 66 percent of manufacturing GDP. Six states were placed under the Conditional MCO (CMCO). The MCO and CMCO will be in place for at least two weeks.

The panel has agreed that the impact is 50 percent less in comparison to the initial MCO and given the better ability to cope with pandemic restrictions, a 2-weeks nationwide MCO may subtract 1-1.5ppt from 2021 GDP growth.

This poses downside risk to Standard Chartered Bank 2021 GDP growth forecast of 7.5 percent.

The impact may be even lower due to the following factors;

·        MCO 2.0 appears to be less restrictive and has not been applied nationwide.

·        The world is not in a synchronised lockdown this time around.

·        The ability to cope with restrictions should mitigate the impact of the MCO.

·        Stimulus measures have already been implemented and remain largely in place.

·        The promise of a vaccine should help limit the downside hit to confidence.

“Given BNM’s neutral stance, BNM will continue the ‘wait and see’ approach. The bank appeared reluctant to cut further, sounding confident on the growth recovery, despite the resurgence of infections and accompanying restrictions,” Edward Lee, Chief Economist of Standard Chartered South Asia, and ASEAN said.

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