Bias on rates turn lower

Some analysts and economists are already predicting the central bank will likely cut its policy rate again this year


BANK Negara Malaysia’s (BNM) move to cut the Overnight Policy Rate (OPR) by 25 basis points (bps) to 2.75% came as a surprise to many who were anticipating the move will take place a little later in the quarter.

For borrowers, the decision is welcomed as the borrowing cost just got a little cheaper and hopefully will encourage businesses to invest and consumers to spend more.

The cut decision by the central bank’s Monetary Policy Committee (MPC) members is a proactive action and a red flag that its indicators are warning the domestic economy is at risk of slowing versus previous quarters and despite the feel-good news from the recent “Phase 1” trade deal between China and the US and green shoots in some of the major economies.

The threat of the spread of coronavirus across the world from China has been cited as some as a possible factor in the MPC’s decision to cut the lending rate benchmark this week. This might be a big call to make for now.

The health problem is not of that scale of the SARS outbreak in 2003 yet and a clearer picture will emerge over the next couple of weeks as the great migration of people in China from the cities inland and vice versa for the Chinese New Year comes to an end. However, the number of cases, for now, seems to be rising by the day.

Looking at its record, BNM seems to have mastered the art of staying ahead of the curve and its decisions in the past year have caught many off guard.

The cut in the policy rate by 25bps in May last year was an “unexpected” move as was the decision to cut the statutory reserve requirements by 50bps in November shortly after the last MPC meeting for 2019.

Undeterred, some analysts and economists are already predicting the central bank will likely cut its policy rate again this year given the uncertainties plaguing the domestic and global economy.

That said, the MPC policy statement stated a readiness to act if the data shows the need and given the central bank has the room to do so. A glimpse into the past sometimes can light the road ahead.

The mindset at BNM could be a legacy from its past governors and their experiences in dealing with economic and financial crisis and uncertainty.

Former BNM governor Tan Sri Dr Zeti Akhtar Aziz in 2014 Per Jacobsson Foundation Lecture in Basel, Switzerland, ended her speech stating the evolution of a crisis is better understood and becomes clearer only in hindsight.

“Indeed, the encounters with crises have demonstrated that the level of uncertainty that prevails as a crisis unfolds cannot be underestimated. Even while timely information is scarce, there are strong pressures for policymakers to respond swiftly and decisively. Policymakers at the centre of managing a crisis need to have courage, nerves of steel and be steadfast in the endeavour,” said Zeti.

So, the next MPC meeting will be in March and will offer a better lead of what to expect of the economy and the monetary regulator.

The latest MPC statement expects the Malaysian economy to post strong numbers in the second half of the year as the new rate impact will be at a two-quarter lag.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.


Friday, November 9, 2018

BNM keeps OPR at 3.25%