BNM’s decision to maintain OPR provides relief to local banks’ NIM and ringgit

The stance of monetary policy remains accommodative and supportive of economic activity


BANK Negara Malaysia (BNM) has taken a “wait-and-see” stance as it kept the Overnight Policy Rate (OPR) at 3%, but warning of a synchronised slowdown in the global economic activity.

The central bank’s neutral stand is expected to bring some relief to the local banking industry’s net interest margin (NIM), according to Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) rose marginally by three points to 1606 points yesterday on news that banks stock financial index increased 65 points or 0.42% with Malayan Banking Bhd rising three sen to RM8.66, while AMMB Holdings Bhd and CIMB Group Holdings Bhd rose eight sen each to RM4.10 and RM5.33 respectively.

Public Bank Bhd rose six sen to RM19.86, while RHB Bank Bhd rose one sen to RM5.76.

Mohd Afzanizam highlighted that there could be some support for banking stocks as banks made up roughly a third of the FBM KLCI.

“From NIM’s perspective (based on BNM’s decision), banking profitability should be decent in the immediate terms,” he said.

The ringgit gained 0.48% to close at a three-month high of 4.129 against the US dollar on the decision.

AxiTrader chief Asia-Pacific market strategist Stephen Innes said the ringgit has picked up where it left off, capturing some of that trade truce euphoria from the Chinese yuan.

“There has been a significant carry over from ‘feel-good Friday’ as both trade optimism and strong US economic data continued to resonate with inflows into the Bursa Malaysia, suggesting real money interest is starting to steam into Malaysia’s capital markets,” he said.

Mohd Afzanizam believes the local economy will continue to be supported by the private sector spending, especially the household expenditure.

“BNM is of the view (domestic) economic growth will continue to be decent. Having said that, the inflation rate is expected to be low and modest this year and in 2020. This provides room for a reduction in the OPR in 2020,” he told The Malaysian Reserve yesterday.

United Overseas Bank (M) Bhd group senior economist Julia Goh said the bias for a rate cut remains as recent economic data has been weak.

“With Malaysian exports worsening at a faster than expected pace of late and business confidence remaining weak, we stick to our view of another ‘pre-emptive’ 25 basis points cut in OPR to 2.75% by the first half of 2020 to further safeguard growth. This is in addition to the mildly expansionary budget for 2020, benign inflation expectations and lagged effect of the previous rate cut in May that are currently supportive of domestic growth moving into 2020,” she stated in a release yesterday.

BNM’s Monetary Policy Committee (MPC) will next meet in January and every two months thereafter.

“The current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC will continue to assess the balance of risks to domestic growth and inflation, to ensure the monetary policy stance remains conducive to sustainable growth amid price stability”, the BNM statement yesterday said.

The central bank added that growth of the economy is expected to be within projections in 2019 and the pace sustained going into 2020.

The central bank felt geopolitical tensions, policy uncertainty and the unresolved trade disputes could exacerbate financial market volatility and further weigh on the global growth outlook.