SRR cut set to boost growth momentum, say economists

KUALA LUMPUR: Reducing the Statutory Reserve Requirement (SRR) ratio is part of Bank Negara Malaysia’s tactical manoeuvring to support the growth momentum and is in line with market forces, says Bank Islam Malaysia Bhd.

Its chief economist Dr Mohd Afzanizam Abdul Rashid said the SRR cut was aimed at providing additional liquidity to the financial system so that banks would have more cash to “play around”, as keeping the funds as SRR would not earn them any return.

“Therefore, the additional liquidity will help to stimulate the lending activities at a time when loans growth has been moderating to 3.8 per cent as of September, from 7.5 per cent in January this year.

“Using the September figures as a yardstick to gauge how much it (SRR cut) would add liquidity into the system, the amount that would be released is estimated at RM7.4 billion when the SRR is reduced from 3.5 to three per cent,” he said yesterday.

Meanwhile, IQI Global chief economist Shan Saeed said market forces expected Bank Negara to lower the interest rate next year.

“So far, 41 central banks have lowered their discount rate this year alone. So, we are moving towards a lower interest rate regime, globally.

“I think what Bank Negara has done is to align with market forces, which is expected. This will help bolster the growth momentum at the macro level. (A) good strategic move from Bank Negara,” he said.

In a statement, here, yesterday, the central bank announced that the SRR ratio would be lowered to three per cent from 3.5 per cent, effective Nov 16.

“The decision to reduce the SRR is to maintain sufficient liquidity in the domestic financial system.

“This will continue to support the efficient functioning of the domestic financial markets and facilitate effective liquidity management by the banking institutions.

“The SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy.

“The Overnight Policy Rate is the sole indicator used to signal the stance of monetary policy, and is announced through a monetary policy statement after the Monetary Policy Committee meeting,” it said.