As BNM has left the OPR unchanged at in its November meeting which came in line with its expectation, the 50bps reduction in the statutory reserve requirement was a surprise move for analysts.
KUCHING: Given the prevalent state of uncertainty in both the global and domestic economy, the general view of analysts is that Bank Megara Malaysia’s (BNM) monetary policy bias would still lean towards a rate cut.
The fact that the statutory reserve requirement (SRR) cut came a few days after the Monetary Policy Committee decided on maintaining the OPR at current level could possibly mean that the decision among members are not unanimous and there could be some degree of disagreement or dissent on the decision on the OPR, said researchers at Kenanga Investment Bank Bhd (Kenanga Research).
“Nevertheless, for the next six to 12 months, we expect BNM would still have room for two more rate cuts or up to 50 basis points,” it opined yesterday.
“The probability of a rate cut is relatively higher in the first half of next year.”
The team at AmBank Research concurred with this, adding that as BNM has left the OPR unchanged at in its November meeting which came in line with its expectation, the 50bps reduction in the statutory reserve requirement (SRR) was a surprise move.
“The SRR cut is expected to provide some relief to banks in terms of better liquidity management and positive for loan growth and economic activities,” it added.
“However, the positive impact on the overall economic activities will depend much on the demand for credit.
“At the moment, there is no clear evidence of a meaningful pick-up in loan growth this year. Loans have been growing at a decreasing rate. And of concern is the rising gross impaired loans.
“Should the effectiveness of the 50bps reduction in the SRR fail to meet the stipulated targets as we move ahead, then there is room for an OPR cut in Jan 22, 2020 by 25bps from the current three per cent.
AmBank said the probability for a rate cut in January 22 is now at a low 40 per cent with room to be raised to 70 per cent.
Julia Goh
UOB Malaysia senior economist Julia Goh believe that BNM will continue to monitor domestic liquidity conditions closely and act when necessary.
“The timing of the recent announcement suggests that any adjustments to SRR can be done any time and not necessarily coincide with the MPC meeting,” she cited in a note.
“The last time when SRR was reduced by more than once within a year was during the global financial crisis in 2008/2009. At this juncture, BNM does not expect an economic recession scenario for 2020.
“Given signs of moderate economic activity in 3Q and 4Q and downside risks to global growth, we have pencilled in another “preemptive” 25bps cut in the OPR to 2.75 per cent by mid-2020. This is to safeguard the official growth projection of 4.8 per cent in 2020.
“The government’s latest economic measures will offer additional support. While the latest developments of an interim US-China trade deal are deemed positive, the possibility of a full resolution in the near term remains low and may take a negative turn if both countries are unable to resolve contentious issues.”