Ringgit losses capped despite OPR cut


The ringgit has lost ground, but the drop was limited as the central bank’s widely expected policy rate cut had been factored into the calculation.

Investors, however, welcomed the accommodative monetary policy which will reduce future lending costs and current borrowings.

Bank Negara Malaysia (BNM) lowered the Overnight Policy Rate (OPR) by 25 basis points to 3% yesterday, pushing the ringgit to drop to RM4.1497 against the US dollar.

However, the slump was within the forecast RM4.10 and RM4.15 range as traders had anticipated the central bank’s move to lower the lending rate.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the OPR cut is a preemptive measure to ensure Malaysia’s economic growth remains sustainable when facing the current global uncertainties.

“The objective of such a policy response is to provide support to the economy by making monetary conditions very accommodative. This would essentially reduce the cost of funds which can stimulate investment activities,” he told The Malaysian Reserve (TMR).

He said the revival of the multibillion East Coast Rail Link (ECRL) and Bandar Malaysia projects will boost corporate financing, while the revised OPR will translate to lower monthly commitments for existing mortgages and financing contracts.

“So, it is a very medium term kind of story on growth and that should help the ringgit to appreciate over time,” he said.

FXTM market analyst Han Tan said the OPR decision could prove a boost to domestic consumption — a positive for the economy amid growing risks to emerging markets.

He said BNM guided in March that it is “building policy and buffers preemptively” in view of the domestic and external environments, thus limiting the ringgit’s downside when the interest rate was lowered yesterday.

However, the US-China trade uncertainties and moderating global growth remain a threat to the local note, he said.

“BNM cited several downside risks to growth in its latest monetary policy statement, and these factors may have an impact on the ringgit’s performance moving forward,” he told TMR.

“Should any of these factors take a turn for the worse — slowing global growth, US-China trade tensions or the decline in oil prices — they could put downward pressure on the ringgit moving forward,” he said.

He said the greenback’s resilience may cap the ringgit’s future gains, as well as other Asian and emerging currencies in the near future.

“While such factors are beyond policymakers’ control, Malaysia still has sufficient policy buffers that can mitigate the potential effects from such downside risks to ensure that domestic growth momentum remains intact,” he said.

Malaysia’s benchmark FTSE Bursa Malaysia KLCI rose 6.57 points or 0.4% to close at 1,639.37 yesterday, boosted by selective large-cap and mid-cap stocks.

JF Apex Securities Bhd head of research Lee Chung Cheng said the OPR and local equity market typically have an inverse relationship as a lower OPR means lower interest rates for companies.

This would translate into better margins for companies when repaying their debt and loan obligations, he said. But Lee said the OPR does not directly impact the market.

“The outcome of US-China trade talks and corporate earnings will provide a better gauge of how the local stock market will perform this year,” he told TMR.