Analysts laud OPR cut as ‘timely move’
Bank Negara Malaysia’s (BNM) decision to cut its overnight policy rate (OPR) by 25bps has garnered positive sentiments from analysts who viewed the move as timely given the current global economic uncertainties.
Bank Negara Malaysia’s (BNM) decision to cut its overnight policy rate ( OPR) by 25bps has garnered positive sentiments from analysts who viewed the move as timely given the current global economic uncertainties.
With the rate cut, BNM becomes the second central bank to reduce the policy rate after India and the first central bank in the Asean region to start loosening its monetary policy.
“We view the Monetary Policy Committee ( MPC) decision as a pre-emptive and a timely move given the current global economic uncertainty, ranging from the US-China trade tension to the slowdown in global trade due to tech cycle trough and a weak economy in China as well as Europe,” said Kenanga Investment Bank Bhd’s research team (Kenanga Research).
In MPC’s statement, it said that the OPR cut is “intended to preserve the degree of monetary accommodativeness,” adding that “it is consistent with the monetary policy stance of supporting a steady growth path amid price stability”.
“While we concur with its rationale, we believe the move is also timely and would complement the government’s effort to boost the economy mainly by reviving most of the mega infrastructure projects that were suspended after the 14th General Election last year,” said Kenanga Research.
Sharing its view, the research team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) commented: “If not for the renewed and unresolved trade tensions between the US and China this week, we believe that BNM may have kept its OPR unchanged.
“With the prolonged trade tensions, we now believe that the International Monetary Fund (IMF) may cut further its 2019 global GDP growth forecast, which had been downgraded to 3.3 per cent (from 3.5 per cent previously) in the latest World Economic Outlook report.
“As such, we believe BNM is taking a pre-emptive action withthe latest move to support the country’s domestic demand from the downside risks to global growth.”
As for the domestic economy, BNM expected the country’s real GDP growth to moderate in the first quarter of 2019 (1Q19), dragged down by the external sector due to slowing global demand conditions.
“We expect Malaysia’s real GDP growth to slow to 4.3 per cent year-on-year (y-o-y) for 1Q19, compared to 4.7 per cent in 4Q18,” said AffinHwang Capital.
It maintained it real GDP growth projection of 4.7 per cent in 2019 (4.7 per cent in 2018), which is within the official forecast range of 4.3 to 4.8 per cent.
On the possibility of another rate cut, AmBank (Malaysia) Bhd’s research arm (AmBank Research) noted that it would heavily depend on the severity of the downside risks to growth from the heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.
“Another consideration will be if there is still evidence of tightening in financial conditions even after a 25bps rate cut to three per cent intended to preserve the degree of monetary accommodativeness.
“Though our base case suggests for only one rate cut by July 2019, we have factored in a 40 per cent chance of a second rate cut later in 2019 or early 2020 should the potential incoming data remain weak,” it added.
“In the meantime, looking at the SRR which is currently at 3.5 per cent, the last time BNM reduced the SRR was in January 2016 as part of a comprehensive effort to ensure sufficient liquidity in the domestic financial system, and to support the orderly functioning of the domestic financial markets.
“Should a scenario similar to 2016 emerge, the possibility of an SRR cut could arise.
“A 50bps cut in the SRR would free up around RM7.0 billion in the system.
"However, its effectiveness remains a challenge on fear that the additional liquidity may not fully seep into the real economy but find its way into the financial market,” AmBank Research said.
We view the Monetary Policy Committee (MPC) decision as a pre-emptive and a timely move given the current global economic uncertainty, ranging from the US-China trade tension to the slowdown in global trade due to tech cycle trough and a weak economy in China as well as Europe. Kenanga Research