Bank Negara Malaysia’s Monetary Policy Committee meeting next week will be keenly watched for policymakers’ latest assessments of the economic outlook.

Malaysia has introduced RM295 billion of stimulus packages to fight Covid-19-induced downturns.

IHS Markit does not expect Bank Negara to lower its Overnight Policy Rate (OPR) during the meeting as the latest economic data was showing improvements.

This could reduce appetite for further monetary measures just yet, the firm said.

A Reuters poll of 12 economists, however, showed a slim majority that Bank Negara would likely cut interest rates to a historic low next week as it seeks to protect Southeast Asia’s third largest economy from the fallout of the Covid-19 pandemic.

The central bank, according to seven of the 12 economists, would likely cut the OPR by at least 25 basis points (bps) to 1.75 per cent, with two of them betting on a bigger 50 bps rate reduction.

The remaining five economists expect interest rates to stay at 2.00 per cent, already a record low, after three consecutive rate reductions in as many meetings this year.

IHS Markit pointed that Bank Negara had reduced the OPR by 50 bps to 2.00 per cent at its May policy meeting but looked set to keep interest rates unchanged at the forthcoming meeting amid signs of recovery.

The firm said Malaysia was one of several countries that had reported higher production trends.

“June PMI (Purchasing Managers’ Index) data showed encouraging signs of a rebound in the Malaysian manufacturing sector, with production rising at a survey-record rate after factories reopened following the easing of Covid-19 restrictions,” IHS Markit added.

Of the seven Asean biggest economies ranked by the Manufacturing PMI, Malaysia and Vietnam were the only countries to have seen a modest increase in the production index.

The rest including Indonesia, Singapore and Thailand were either saw marginal, modest and solid decrease in output.

Kenanga Research noted that the Malaysian manufacturing sector’s recovery had gained traction in June, with its first expansion in 21 months.

This was attributed to further reopening of economic activities as the nation entered the Recovery Movement Control Order phase on June 10.

The firm said some factories had registered a faster production rate in order to clear backlogs.

“New orders picked up to a six-month high, underpinned mainly by improved domestic demand. While new export orders recorded smaller contraction, underlying weakness in foreign demand prevailed with major countries remained subjected to a certain degree of business restrictions,” Kenanga Research said.

The firm expects Bank Negara to slash its OPR by 25 bps next week.

“Along with the deflationary environment and active monetary easing by centrals banks in the developed region, we view that the central bank has ample room to embark on further easing,” it said.