by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL
BANK Negara Malaysia (BNM) is unlikely to slash the Overnight Policy Rate (OPR) immediately as an emergency measure despite actions by the US to cut rates to zero.
The US Federal Reserve’s (Fed) shocked move came as the coronavirus outbreak turned pandemic and is cogging global economic growth.
In an unscheduled meeting on Sunday, the US Federal Open Market Committee (FOMC) dropped its policy rate to zero and 0.25%, and acquired US$700 billion (RM3.02 trillion) in government and mortgage-related bonds to keep the world’s largest economy from falling.
Hours after the cut was announced by the Fed, Hong Kong Monetary Authority lowered its base rate by 65 basis points (bps) to 0.86%, the second reduction in March by both monetary authorities.
MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Mohd Yusof said BNM may cut the OPR at the third Monetary Policy Committee (MPC) meeting in May.
“BNM would not follow the US and announce an emergency OPR cut as it will likely do so during an MPC meeting.
“We also have to bear in mind that they have cut the rate twice this year and our government was also quick to introduce a stimulus package.
“However, we do believe the central bank may take another easing stance during its May meeting,” he told The Malaysian Reserve (TMR).
He said the central bank would be observing the impact of its monetary actions before deciding if the Malaysian economy requires another policy rate cut.
BNM announced its second cut this year, slashing 25bps to 2.5% from 2.75% after the second meeting earlier this month. It slashed another 25bps in January this year.
Last year, the central bank reduced the base rate use for lending to 3% from 3.25% in May.
Imran Yassin expects BNM to slash another 25bps, bringing the OPR to 2.25% at the next MPC’s meeting.
“It is very unlikely that the OPR will go to zero because we opine that BNM will need to maintain some buffer to give them room to manoeuvre should the economic conditions worsen,” he said.
In a report, Hong Leong Investment Bank said BNM will likely reduce the policy rate by a total of 50bps this year to bring the rate down to 2% in 2020.
“Due to increasing concerns that Covid-19 may have a prolonged impact on economic activity, we opine the FOMC would focus on communication and expand the balance sheet further to undertake other crisis-era measures in the future should global financial conditions remain volatile.
“Closer to home, we opine that BNM would cut its OPR by 25bps during the MPC meeting amid worsening global and domestic economic conditions,” it said.