HSBC is expecting Bank Negara Malaysia to keep the Overnight Policy Rate at 1.75 percent on May 6. The bank has also forecasted the start of a gradual normalisation cycle by the end of 2022, at the earliest.
“Some degree of further restrictions appears likely, and mobility, and consumer spending may soften further in the coming weeks, significantly derailing the pace of the recovery in Q2,” says HSBC Chief Economist, Joseph Incalcaterra.
With Malaysia now worrying the forth wave of Covid-19 infections, the Health Ministry has indicated that cases may soon cross the 5,000 cases a day mark.
“Policymaker expectations for growth to rebound by 6 – 7.5% appear excessively optimistic, given the clear deterioration in consumer mobility. But it would also be a mistake to turn too pessimistic,” the Chief Economist says.
“Activity in Malaysia’s manufacturing and export sectors continues to roar, in line with our expectation that export growth would accelerate due to soaring demand for Malaysia’s semiconductor exports , thanks in part to a large share of automotive chip production coupled,” he added.
Incalcaterra further said that despite downside risks to BNM’s growth forecast, there is a high bar for further monetary policy accommodation.
BNM can count on manufacturing growth to provide support to the economy and employment, while the government has secured enough vaccine doses to enable the country to achieve some form of herd immunity by year-end 2021, he says.
HSBC has also highlighted that headline inflation is likely to continue rising in 2021 due to base effects and higher energy prices.
“While the central bank can look through this volatility, it nonetheless reduces the likelihood of further easing as the real policy rate buffer evaporates.
“BNM also remains focused on elevated household debt growth, and can rely on still-expansionary fiscal policy to provide targeted support to the economy,” Incalcaterra says.