OPR likely to stay at 3%
Malaysia explores transaction limit to combat money laundering
Bank Negara, the first central bank in South-east Asia to start monetary easing this year, is unlikely to slash its benchmark interest rate.
The central bank is expected to leave its overnight policy rate (OPR) unchanged at 3% which may encourage the increase in foreign fund flows particularly into bonds and sukuk.
Alliance Bank Malaysia Bhd chief economist Manokaran Mottain told Starbiz that the country could enjoy a “widened interest rate differential” compared with the Federal Reserve’s (Fed) federal funds rate if Bank Negara retained its OPR.
“Following the recent rate cut by the Fed to 1.5%-1.75% and with Malaysia’s interest rate being at 3%, the difference in interest rates has increased to 125 to 150 basis points (bps).
“This would make the Malaysian bond market more attractive to foreign investors since our returns are higher now, given the widened interest rate differential. This means we can expect more foreign funds in portfolio investments,” he pointed out.
While several other regional central banks have been aggressively cutting rates, including Indonesia which lowered its key interest rate for four straight months, many pundits believed that Bank Negara might be saving its ammunition in the event the economy continues to slow down in the coming quarters.
A total of 64% or 16 of the economists polled by Bloomberg expected the central bank to retain the OPR at 3%, ahead of the Monetary Policy Committee (MPC) meeting today. Nine other economists have projected a 25-bps cut to 2.75%.
Meanwhile, a poll by Reuters showed that eight out of 11 economists have forecast Bank Negara holding the OPR steady at 3%. Three economists, on the other hand, anticipated a rate cut of 25bps to 2.75%.
According to Standard Chartered Global Research, Bank Negara will likely adopt a “wait-and-see” stance and maintain the OPR.
The research house said the central bank has room to calibrate its policy response, given the country’s resilient economic growth.
It is worth noting that the Malaysian economy has outperformed market predictions in the past three quarters since the fourth quarter of 2018 (4Q18).
The country’s gross domestic product (GDP) grew by 4.7%, 4.5% and 4.9% in 4Q18, 1Q19 and 2Q19, respectively.
“We will watch for Bank Negara’s view on how domestic conditions have evolved since the latest meeting, given that the domestic economy’s resilience has been the primary growth driver for the past few quarters.
“Private consumption faces a high base effect in the second half, however, with credit growth showing signs of easing. Loans disbursed to households fell 0.8% year-on-year (y-o-y) threemonth moving average in August from a high of 11.1% y-o-y during the same period a year ago due to the ‘tax holiday’,” it said.
Alliance Bank’s Manokaran said there was no urgency to review the OPR during the meeting, as most of the country’s economic fundamentals remained strong.
“Of course, concerns on the trade war between the United States and China remain and present a risk to the economy. Exportwise, there could be some weakness ahead, but it won’t be similar to the kind of negative performance during the 2008/2009 global economic crisis. We expect the GDP to grow by 4.7% in 3Q19. While this will be slightly lower than the second-quarter growth, the economy continues to be resilient.
“Given such conditions, I don’t see a reason for a rate cut in the MPC meeting,” he said.
Manokaran, however, expected Bank Negara to lower the OPR in the first MPC meeting of 2020.
Taking a contrasting standpoint, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid has forecast a 25-bps cut in the OPR, largely driven by the concerns on the weakening external front.
PETALING JAYA: Malaysia is exploring the implementation of a cash transaction limit (CTL) by next year as one of the measures to combat the rising cases of money laundering and financial crime.
During the annual report and the financial stability and payments system report briefing in March, the governor of the central bank announced that it would continue to look at measures to safeguard the integrity of the financial system against threats posed by money laundering and terrorism financing.
One of the measures was the study of the CTL.
The move to introduce the CTL was to safeguard and strengthen the integrity of the country’s financial system.
The central bank noted that it was imperative to have a safeguard in place in the form of the CTL in view of the risks of money laundering and financial crime.
This is because cash remains extensively used by criminals as the medium to facilitate financial crime, it added.
The bank said it would be gathering feedback from the relevant stakeholders, ie, the public and businesses, to ensure the CTL meets its objectives. It hopes to have this measure implemented by next year.
The CTL is defined as a maximum limit per transaction that can be paid by cash.
Any aggregate amount above the limit needs to be paid electronically or by cheque through the banking system.
It is not a new measure as such a limit on cash has been implemented in Europe and Asia.
In Indonesia, the proposed draft bill on the CTL in 2018 was to limit cash payments to a maximum of 100 million rupiah. In Australia, the limit is capped at A$10,000.
The untraceable and anonymous nature of cash makes it an ideal vehicle to facilitate illicit activities such as corruption, money laundering, smuggling, organised crime and illicit drug trafficking. In light of this, the limit is meant to mitigate the abuse of cash for illicit activities.
As such, this measure typically targets high-value transactions.
Analysts agreed with the central bank, adding that although cash is important for individuals and businesses, it is open to abuse as it is extensively used by criminals to store, move and disburse illegal proceeds.
The untraceable and anonymous nature of cash makes it vulnerable to abuse as a medium of exchange for criminals to enjoy illegal proceeds, especially via the purchase of luxury or high-value items.
In the keynote address made by the Bank Negara governor at the 10th International Conference on Financial Crime and Terrorism Financing, it was said that the cash threshold report was introduced effective Jan 1 this year to mitigate financial crime.
The threshold of RM50,000 was reduced to RM25,000, which would enhance the monitoring and better visibility on suspicious transaction patterns.
Any transaction above RM25,000 would need to be reported as a requirement imposed on banking institutions and other relevant reporting institutions as a source of information used for financial crime surveillance, intelligence and investigations by law enforcement agencies in Malaysia.