Bank Negara expected to hold key rate on weakening ringgit
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