Bank Ne­gara ex­pected to hold key rate on weak­en­ing ring­git

The Sun (Malaysia) - - MEDIA & MARKETING -

KUALA LUMPUR: Bank Ne­gara Malaysia (BNM) is ex­pected to leave its bench­mark rate un­changed today, at its first pol­icy meet­ing since Don­ald Trump’s win in the US pres­i­den­tial elec­tion bat­tered the ring­git.

The Malaysian cen­tral bank cut its Overnight Pol­icy Rate (OPR) by 25 ba­sis points (bps) to 3% in July, and some an­a­lysts ear­lier ex­pected an­other re­duc­tion this year to try to boost weak­en­ing do­mes­tic de­mand.

But the tum­ble in the ring­git since Trump’s win en­sures no cut today, they say. The ring­git has shed more than 5% since his vic­tory, hit­ting a 13-month low of 4.435 on Tues­day.

All 13 economists polled by Reuters fore­cast no rate change today, on con­cerns it would put more pres­sure on the Malaysian cur­rency.

HSBC thinks BNM is likely to cut the key rate by 25 bps in the first quar­ter of 2017.

“Low in­fla­tion, par­tic­u­larly over Jan­uary and Fe­bru­ary, will pro­vide scope for eas­ing,” the bank said in a Nov 18 re­search note.

July’s rate cut, the first in seven years, came less than two weeks af­ter Bri­tain’s Brexit vote.

The re­cent ring­git slump has over­shad­owed a sur­prise turn­around in Malaysia’s econ­omy, which re­ported 4.3% an­nual growth in July-Septem­ber, end­ing a five- quar­ter de­cline in the ex­pan­sion pace.

In Jan­uary, the govern­ment trimmed the 2016 growth pro­jec­tion to 4.0-4.5% from 4.05.0%.

No­mura says BNM is likely lean­ing to­wards a pos­si­ble 50 bps cut to its statu­tory re­serve re­quire­ment ra­tio (SRR) to deal with grow­ing fi­nan­cial im­bal­ance risks.

With the weak­en­ing ring­git, cut­ting the SRR is a “more vi­able op­tion” than the bench­mark, it said in a Nov 21 note.

In Jan­uary, BNM un­ex­pect­edly cut the SRR to 3.5% from 4.0% to add liq­uid­ity to the bank­ing sys­tem.

The Royal Bank of Scot­land cau­tioned against an SRR cut today. It said loan growth av­er­ag­ing 5.9% over the first three quar­ters against over­all de­posit growth of 0.2% “sets up con­di­tions for a liq­uid­ity squeeze”. – Reuters

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