High chances of another OPR cut this year

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Analysts believe there could be another rate cut in the second half of this year as BNM might want to assess the impact of its two recent monetary interventions, namely the statutory reserve requirement and the OPR. — Bernama photo

KUCHING: Several research houses believe there could be a possibility of another cut in the Overnight Policy Rate (OPR) this year after Bank Negara Malaysia (BNM) reduced the rate by 25 basis points (bps) last week.

Given the prevalent state of uncertainty in both the global and domestic economy, the team at Kenanga Investment Bank Bhd (Kenanga Research) expect the central bank to still lean towards another rate cut this year.

“For the time being, BNM has signalled a pause, stating that ‘at this current level of the OPR, the Monetary Policy Committee (MPC) considers the stance of monetary policy to be appropriate in sustaining economic growth with price stability’.

“However, we suspect the growing concerns of the spread of Coronavirus might have partly influenced and hasten BNM’s decision to cut this round,” it said in a note last Thursday.

BNM decided to reduce the rate to 2.75 per cent from 3.0 per cent as a pre-emptive measure to secure improving growth trajectory amid price stability.

Concurring with Kenanga Research, PublicInvest Research said there could be another rate cut in the second half of this year as BNM might want to assess the impact of its two recent monetary interventions, namely the statutory reserve requirement and the OPR.

“This may be more compelling if the growth trajectory slipped below the four per cent range.

“On balance, our baseline forecast is for the Malaysian economy to remain on a stable growth path, projected to rebound mildly to 4.8 per cent in 2020 (2019 estimate: 4.7 per cent), consistent with the expectation of the Ministry of Finance,” it added.

Meanwhile, OCBC Bank’s Treasury Research said even with the latest 25 basis points (bps) rate cut, the official growth assumption may still be hard to achieve especially if global trade flows become curtailed again by the breakdown in the US-China trade truce or if the Wuhan virus scare takes on a life of its own.

“We had highlighted before that the 4.8 per cent growth rate in 2020 that underpins the fiscal assumption was too optimistic, and we reckon growth is likely to be closer to 4.2 per cent that we expect.

“Hence, this is unlikely to be BNM’s last action of the year. We continue to see the possibility of an aggregate of 50 bps rate cuts this year. That is to say, one more rate cut is to be expected after Wednesday’s move,” it said.

On an interesting take, researchers with Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed the latest OPR cut by BNM may be partly attributed to the recent coronavirus (2019-nCoV) outbreak amid increasing number of confirmed cases of infection.

“This may be a pre-emptive measure in order to contain its implications on economic activity, especially in the tourism and retail sectors,” it detailled in its notes.

“Therefore, unless the coronavirus outbreak worsens, we anticipate BNM to keep its OPR unchanged throughout 2020 as it guided that the current OPR level of 2.75 per cent is appropriate in sustaining economic growth with price stability.”