While the market is still pumped by Bank Negara Malaysia (BNM)’s surprise move to cut the Overnight Policy Rate (OPR) last week, there is now fresh buzz surrounding the central bank’s intention to provide further cuts later in the year.
While this news should be taken with a pinch of salt, as such reductions are usually an indicator of a slowing economy, the financial analysts that foresee further lending rate cuts agree that it would be a positive and proactive move by BNM.
Institutions such as Maybank and Hong Leong Bank have pointed out that BNM’s primary aim is to sustain Malaysia’s economic growth, which has been forecast to grow between 4.0 and 4.5 per cent this year.
The initial cut of 25 basis points last week was seen as a pre-emptive measure to mitigate the risks and repercussions arising from Britain’s exit from the European Union. However, there are further risks to domestic growth, arising from both domestic uncertainties and external headwinds, which a number of banks agree will lead to further easing of policy.
Furthermore, the diminishing outlook of the United States Federal Reserve rate hike will offer more room for BNM to nudge rates lower.
Any further cuts on lending rates will probably come from the next monetary policy meeting, which is scheduled for Sept 7, 2016.
“By cutting rates, the central bank is trying to entice further domestic borrowing in the hope of lifting growth prospects at a time when the global economic environment itself remains uncertain,” said FXTM’s vice president of Corporate Development and Market Research Jameel Ahmad. – Bernama