PETALING JAYA: With the phase one of the National Recovery Plan (NRP) extended once again, all eyes are on the fresh measures needed to turbo-boost the still-fragile economy.

       On the fiscal front, the government has announced a new stimulus package worth RM150bil yesterday that would mitigate, to an extent, the country’s economic losses of RM1bil a day.

       As for the monetary policy, one wonders whether the benchmark interest rate could be slashed further to lend support for borrowings in the market that would in turn, spur business activities.

       However, with inflation already in the positive territory for the past three reported months, Bank Negara may be constrained in cutting the overnight policy rate (OPR), which is already at record-low.

       Economists largely feel that the current low interest rate environment is already sufficient to accommodate the economy.

       For the fourth time this year, Bank Negara’s Monetary Policy Committee will be convening on July 7-8 to decide on the OPR.

       Speaking to StarBiz, Socio-Economic Research Centre executive director Lee Heng Guie said the OPR is likely to be retained at 1.75%, although he agreed that the uneven economic recovery is being dented by the implementation of the Phase 1 of NRP.

       “Loan repayment moratorium is a better tool (temporary) to provide cash flow relief to borrowers during the lockdown.

       “High number of infections is foremost a health issue that has weakened consumer sentiment, making consumers highly cautious in their discretionary spending. Cheaper loans will not help much in spurring demand in current times, ” he said.

       On other measures that Bank Negara could deploy, Lee said the central bank could provide direct credit facilities to help businesses via increased allocation of low interest rate special relief funds.

       “The central bank can continue to co-engage the industries together with the financial institutions to work out a flexible loan repayment as in the case of loan moratorium, ” he added.

       AmBank Research also expects the OPR to be maintained at 1.75%.

       This is despite the heightened uncertainties driven by the pandemic and supply chain disruptions, as well as the delay in the reopening of the economy.

       “And with the focus to manage the pandemic, speed of vaccination and testing plus quarantine, this would mean any rate hike by Bank Negara is unlikely to happen in 2021, but more so in 2022, ” it said in a note yesterday.

       Meanwhile, CGS-CIMB Research believes that the central bank will let its monetary policy remain loose as the economy operates below potential.

       The research house also pointed out that the headline inflation could decelerate for the rest of the year. CGS-CIMB Research’s annual inflation forecast for 2021 is reiterated at 3.1% y-o-y as compared to Bank Negara’s 2.5% to 4% forecast.

       “The full movement control order will likely keep the economy operating below potential for an extended period of time, warranting an accommodative monetary policy.

       “As such, we expect Bank Negara to leave the OPR at 1.75% in the second half of 2021, ” it said.