KUALA LUMPUR, May 5 — Bank Negara Malaysia (BNM) reduction of the Overnight Policy Rate (OPR) by 50 basis points (bps) to 2.00 per cent, the lowest level since the global financial crisis of mid 2007 – early 2009 is largely anticipated, given the potential economic impact of COVID-19.
MIDF Research senior analyst Imran Yassin Md Yusof said this will reduce borrowing cost and make existing loans slightly cheaper.
“In our opinion, the intended effect for the OPR cut is to ensure more disposable income for consumers and reduce cash-flow pressure for businesses, and induce loans growth.
“With the lower borrowing cost, consumers will pay less for their loans which will translate into more disposable income. It is hoped that this additional income will induce consumers to spend, which is an important factor to reignite the economy,” he told Bernama.
On another note, he said the central bank has also relaxed the condition on the Statutory Reserve Requirement (SRR) which is believed to ensure sufficient liquidity and again possibly induce lending activities.
BNM today announced that Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) can be used by banking institutions to fully meet the SRR compliance, effective May 16, 2020.
For banks, Imran Yassin said its net interest income will come under pressure from the cut in the OPR but he believed that impact will be muted as deposit-taking activities have been very subdued since the fourth quarter of last year.
Therefore, he believed that the more important indicator for banks at the moment is asset quality.
Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid viewed the latest decision by BNM to cut the OPR at one go was very much expected and it made sense due to the severity of the COVID-19 impact is real.
“We could see businesses have to shut down due to the Movement Control Order (MCO) which has resulted in losses in revenue and income, judging from the recent company announcements for the first quarter of 2020 (1Q2020) earnings results.
“Most of them are saying they continue to operate their business during the MCO but with a smaller workforce and stringent safety measures to safeguard their workers, (all of) which are affecting their margins,” he said.
He noted globally, major economies such as the US and China also saw their Gross Domestic Product fell by 4.8 per cent and 6.8 per cent, respectively, in 1Q2020.
With the supply and demand shock happening at the same time, it warrants for the monetary policy to be highly accommodative, he said.
“Whether it will be cut further, this will be subjected to the evolving economic outlook. Thus far, the inflation rate is expected to be very low and therefore, rooms for further policy accommodation is widely open,” he added.