OPR reduction: is it really all good news? OPR reduction: is it really all good news?
Share this on WhatsApp  BY Roznah Abdul Jabbar  The recent cut on the Overnight Policy Rate (OPR) to three per cent from the previous... OPR reduction: is it really all good news?

 

BY Roznah Abdul Jabbar 

The recent cut on the Overnight Policy Rate (OPR) to three per cent from the previous 3.25 per cent is said to be a boost to the consumer sentiment and property market, although not significantly. However, not all agree on the scope of its impact.

Following the announcement by Bank Negara Malaysia (BNM), several banks have responded by announcing reductions to the base rate (BR), much to the delight of property buyers.

According to CIMB Equities Research, every reduction of 25 basis point (bp) in the borrowing rate would reduce the monthly instalment for a 30-year mortgage loan by 3 per cent, and following this, the purchasing power of home buyers would rise by a similar quantum.

It said a 25bp reduction in borrowing rates could increase consumers’ disposable income due to reduction in interest payments, and this is likely to have some positive impact on consumer sentiment.

While most industry players agree that the OPR cut will spur development and purchasing activity, there are those who believe more must be done to reinvigorate the market.

While most industry players agree that the OPR cut will spur development and purchasing activity, there are those who believe more must be done to reinvigorate the market.

Interest in property purchasing has fallen since 3Q14, in tandem with consumer sentiment.  Therefore, a recovery in consumer sentiment could boost homebuyers’ confidence and lead to higher demand for property.

The research house said when it upgraded the property sector from “Hold” to “Overweight” in February 2016, it expected property sales in 2H16 to be better half-on-half due to gradual recovery in consumer sentiment from subsiding effects of political uncertainty, shock from the weak ringgit and low crude oil prices in 2015.

“The cut in OPR supports our view of improving consumer sentiment in 2H16, which could lead to property sales recovering sooner [rather] than later,” it said.

AmBank Group CEO Datuk Sulaiman Mohd Tahir said BNM’s decision to reduce the OPR comes at the right time and will have positive ramifications for consumers as well as the Malaysian economy as a whole.

“While deposits will be less attractive moving forward, consumers can explore other investment opportunities such as unit trusts and wealth management products which can potentially yield higher earnings,” he said.

CIMB Group CEO Tengku Datuk Seri Zafrul Aziz Tengku Abdul Aziz said the central bank’s pre-emptive decision to reduce the OPR is both timely and strategic, given the current challenges faced by the domestic economy due to possible spillover effects from global uncertainties.

“We support this accommodative monetary policy that encourages investments. It is favourable to borrowers and consumers, and improves prospects moving forward. This cut will also reduce the risk of external imbalances, in view of the general decline in global interest rates,” he said.

However, not all quarters are convinced. TA Securities Holdings Bhd (TASH), for example, does not believe the rate cut will boost property sales significantly.

According to a report by the company’s research arm, the positive effect would only be seen if a combination of easing policies are introduced, such as further OPR cuts, additional reduction in Statutory Reserve Requirement (SRR), and an easing of property cooling measures – such as the reinstatement of the developer interest bearing scheme, removal of the 70 per cent Loan to Value Cap on third property and the lowering of real property gain tax.

Given the weak consumer sentiment and stringent lending practices, the research team pointed out that these are key dampeners to property sales.

As such, it said the loosening monetary policy alone is unlikely to revive the overall housing market.

“Also, a cut in OPR may not change the banks’ prudent stance on loan approvals,” it added.

TASH also said that in view of the challenging macro environment, consumers might prefer to hold more financial buffers for living expenses and to protect themselves against rising costs and unexpected adverse events.

“At this juncture, our view is that BNM will maintain the current OPR at three per cent throughout the year,” TA Securities said.

In a statement by BNM regarding the cut, the first since 2009, it said that the adjustment to the OPR is intended for the degree of monetary accommodativeness to remain consistent with the policy stance to “ensure that the domestic economy continues on a steady growth path amid stable inflation, supported by continued healthy financial intermediation in the economy”.

It said the Monetary Policy Committee will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

 

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