Government may introduce more monetary policy and fiscal stimulus soon - Analysts

​The government may introduce additional monetary policy and fiscal stimulus soon to cushion the economy from any downside risks associated with the COVID-19 outbreak, according to analysts

The government may introduce additional monetary policy and fiscal stimulus soon to cushion the economy from any downside risks associated with the COVID-19 outbreak, according to analysts.

The possibility could not be discounted as the country’s economic outlook is also clouded by the slump in crude oil price amid the global financial market turmoil.

The government have already introduced some measures such as the 25 basis points (bps) reduction in the overnight policy rate (OPR) to 2.50 per cent by Bank Negara Malaysia (BNM) on March 3, the lowering of fuel price and the introduction of an RM20 billion economic stimulus package on Feb 27.

“There is the prospect of at least another 25bps-50bps cut in OPR,” Maybank IB Research in a note today.

The investment bank also did not rule out the possibility of reductions in the current 3.00 per cent Statutory Reserve Requirement (SRR) as last week’s global financial market meltdown further tightened and deteriorated financial conditions.

It pointed out that the BNM’s next Monetary Policy Committee meeting is scheduled on May 4 and 5 but there is the potential of emergency unscheduled meeting.

“The SRR cut can be announced outside of the meeting as per the cut announced in November 2019,” it said.

As the new government is revisiting the economic stimulus package, Maybank IB Research believed several measures could be enhanced and broadened.

It said a number of the targeted and time-bound fiscal measures reliefs starting in March until September can be extended until year-end.

In terms of the role of government-linked companies, the national oil company, Petronas, which is sitting on RM73 billion net cash, could maintain its domestic capital expenditure (capex) plan to mitigate any impact on the domestic oil and gas industry.

Maybank IB Research also did not rule out the prospect of additional or special Petronas dividend to boost the government coffers to prevent an excessive increase in the country’s budget deficit as well as cutbacks in the government spending to fund additional fiscal stimulus.

Meanwhile, Wazan Capital director Izrul Zainal Abidin said the revised or supplementary budget should be carried out to cover the shortfall of the 2020 Budget as it used oil price assumption of US$62 per barrel compared to around US$30 per barrel now.

In the meantime, he told Bernama that the government should introduce more effective tax structure to boost its revenue following the abolishment of Goods and Services Tax about two years ago.

He said the Sales and Service Tax has clearly failed to replace GST in term of collection.

Ahead of the upcoming Parliament sitting on May 18, Izrul also stressed the importance of politicians to focus their debate on economic issues and find ways to boost economic activity and reduce unemployment.

"As the global economic environment becomes more volatile and as Malaysia becomes more exposed to movements in global commodity prices the risks of such shock are likely to rise.

"Let's set aside all the political drama and it is now the duty of the rakyat and the new Cabinet line-up to work together hand-in-hand to rebuild the nation and bring it to the highest level," he said.

Source: Bernama 

Posted on : 16 March 2020
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Last Updated : Thursday 21st May 2020