Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group commented on the recent decision by the BNM.
Key Quotes
“Bank Negara Malaysia (BNM) announced a reduction in the Statutory Reserve Requirement (SRR) ratio by 50bps to 3.00% effective 16 Nov. This marks the first SRR reduction since Feb 2016″.
“BNM said that the 50bps reduction in SRR is to maintain sufficient liquidity in the domestic financial system. It is not a signal on the stance of monetary policy as the OPR is the sole indicator used to signal the stance of monetary policy”.
“We believe the SRR cut comes amid a moderation in domestic liquidity as broad money supply slows and outflows in foreign portfolio funds persist. We estimate about MYR7.4bn of liquidity will be released into the banking system with the 50bps cut in SRR”.
“Going forward, we 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. The last time when SRR was reduced by more than once within a year was during the global financial crisis in 2008/09 to a low of 1.00%. At this juncture, BNM does not expect an economic recession scenario for 2020″.
“Given signs of moderate economic activity in 3Q-4Q and downside risks to global growth, we have pencilled in another “preemptive” 25bps cut in the OPR to 2.75% by mid-2020. This is to safeguard the official growth projection of 4.8% 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”.
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