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UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the recent decision by the Bank Negara Malaysia to cut rates by 50 bps to 2.00%.

Key Quotes

“Bank Negara Malaysia (BNM) cut the Overnight Policy Rate (OPR) by 50bps to 2.00% today (5 May)… While keeping the Statutory Reserve Requirement (SRR) unchanged at 2.00%, BNM allowed all banks to use Malaysian Government Securities (MGS) and Malaysian Government Investment Issue (MGII) to fully meet the SRR compliance effective 16 May 2020 until 31 May 2021. This measure will release about MYR16bn worth of liquidity into the banking system.”

“In the latest monetary policy statement, BNM cited a dimmer global economic outlook with policy responses across the globe helping to mitigate the effects of COVID-19. For Malaysia, the central bank warned that the growth outlook continues to be subject to a high degree of uncertainty, particularly with respect to developments surrounding the pandemic. It foresees 1H20 economic conditions to be highly challenging before staging a gradual recovery in 2H20. BNM also highlighted the possibility of Malaysia recording negative inflation or deflation this year (BNM forecast: -1.5% to +0.5%, UOB forecast: -0.5%).”

“We see today’s OPR cut as a reinforcement of the MYR260bn fiscal measures and previous rate cuts to support the economy. Given that the government has allowed a reopening of the economy (since 4 May), this will help to blunt the recessionary effect and pave the way for a recovery in 2H20. Although BNM kept the door open, we do not expect further OPR cuts for the year. The next scheduled Monetary Policy Committee (MPC) meeting will be on 7 Jul 2020, while the next key data to watch is 1Q20 GDP release on 13 May.”