Bank Negara Malaysia slashes OPR to 3.25%!
After several months of anticipation, Bank Negara Malaysia has cut key interest rate by 25 basis points, which means BLR may be adjusted as well. Many would seek refinancing now, but do take care of the clauses that may be introduced.
25-11-2008: BNM cuts OPR to 3.25%, SRR reduction a surprise
by Gan Yen Kuan
Email us your feedback at fd@bizedge.comKUALA LUMPUR: Bank Negara Malaysia (BNM) yesterday cut the key interest rate by 25 basis points (bps), the first rate adjustment since April 2006, and made a surprise 50bps slash to banks’ statutory reserve requirement (SRR), as the deteriorating global slowdown has started to affect domestic growth.
In slashing the overnight policy rate (OPR) to 3.25% from 3.5% and the SRR to 3.5% from 4%, BNM said since its previous monetary policy commitee (CPM) meeting a month ago, the outlook for global growth had deteriorated further, while global inflation had begun to recede and the downward trend was expected to continue.
The SRR reduction will come into effect on Dec 1, 2008.
“This move (SRR reduction) is unexpected. I am surprised. The previous concerns were that lower interest rates would penalise the depositors. But now banks don’t have to lower the deposit rate. This is a positive move by BNM,” RAM Holdings Bhd group chief economist Yeah Kim Leng told The Edge Financial Daily.
BNM last cut the key rate (then the intervention rate) in May 2003 to prevent the economy from undergoing growth deceleration due to the SARS crisis and last raised the key rate in April 2006.
In its statement, BNM said “Given the heightened downside risks to growth and the diminishing inflationary pressures, the reduction in the OPR is a pre-emptive measure aimed at providing a more accommodative monetary environment.”
The central bank said the cutting of the SRR was to further reduce the cost of intermediation. With the cut in OPR, BNM said the ceiling and floor rates of the corridor for the OPR were correspondingly reduced to 3.5% and 3%, respectively.
“The adverse global developments have already affected the Malaysian economy, as evidenced by the slowdown in export performance and lower equity prices.”
“While domestic demand remains resilient, there are indications of slower private sector activity amid some softening in the labour market conditions and a more challenging business environment. Sustaining domestic demand is key to ensuring that growth in 2009 remains positive,” BNM said.
Given that several major advanced economies were now in recession, the central bank said the sharp slowdown in global demand, the significant fall in commodity prices and the substantial decline in equity prices had exerted greater downward pressure on the growth prospects of regional economies.
“These global developments have prompted authorities to provide significant liquidity support to the financial system, undertake financial sector resolution measures, as well as fiscal stimulus and monetary easing to support economic growth. The impact of these measures will, however, take some time to be fully realised,” it said.
BNM said the risk to domestic price stability was now substantially reduced and going forward, the lower cost pressures and the slowdown in demand were expected to exert a greater dampening influence on inflation, which had peaked in the third quarter.
RAM’s Yeah said the sharper-than-expected deceleration in advanced economies in the world prompted BNM to cut rates to stimulate demand. He lauded BNM’s move to cut SRR, as this would lower the cost of fund for banks, which would in turn benefit the depositors.
BNM said the global economic and the international financial conditions were expected to remain volatile and uncertain going forward “BNM will monitor closely the evolving developments and will undertake the appropriate policy response to avoid a severe economic downturn,” it said.
Yesterday, the ringgit weakend further to 3.6292 against the US dollar as at 4.15pm.
While lower interest rates may see the ringgit weakening further, Malaysian Rating Corporation Bhd chief economist Nor Zahidi Alias said: “Ringgit is not the only currency which is depreciating against the US dollar – many other regional currencies are experiencing the same phenomenon as the current situation is driven by the strength of the US dollar and not the weakness of the regional currencies.”
“In fact, the weakness of the ringgit may be a blessing in disguise as it will help the export sector at a time when the (weakening) global demand is putting an intense pressure on our external sector,” he said.
Ahead of BNM’s decision, the Kuala Lumpur Composite Index fell 11.49 points to 855.39, with investors uncertain if the central bank would cut interest rates.
December 9th, 2008 at 5:02 pm
I do not understand why Malaysian Government has not announced anti-crisis measures. It is only logical and wise to take preventive measures. Malaysia will not be isolated from the global economic crisis. I think our government is denying facts for to protect their already bad image. The fact that BN has implemented this interest rate cut is an evident that Malaysian economy is sinking. Our government is renown for saying one thing and doing another. Then they would blame the public for everything. In the first place Malaysia has long been in a recession. Even when the economy is good our interest rate is among the lowest compared to other developed countries like Australia. Worst in Abdullah Badawi’s regime, our country has gone from bad to worst.
January 8th, 2009 at 2:51 pm
It’s time for BNM to slash down more interest, US is going to zero-interest era but its economy still not boosted much. If Malaysia still holding with 3.25%, recession will be more closed to us.
3 of our biggest importer countries (US, Singapore and Japan) are in recession, as a export orientated, do you think we can escape from the crisis? Malaysia has to keep its currency low against US Dollar and Sing Dollar to boost up the export, further cutting of interest is a must. We will see USD and Sing$ going strong in coming future, in order to keep our export competitive.
Looking at our car and properties sales market, we are not as bad as US, but we can feel the sharp decline recently regardless how optimitic of our government or private sectors, don’t be blinded with their optimistic forecasts. And the situation will be going worse when big layoffs happen, workers working oevrseas coming back as jobless, SME strunggling for loans and etc. The twin oil prices (crude oil and palm oil) are “free falling” from its peak since July 2008. Although it has eased the inflationary pressure (the inflation was manily caused by high oil price), the ease of inflationary pressure may not help much on economy recovery, why? It’s simple, during the period of high inflation, our (Malaysian) incomes were not raised accordingly to the inflation rate, meaning that we are still having the same income as before (assuming the currency has not fluctuated, which is not the case).
Dont forget, twin oils are Malaysia major income, with current low prices, Corporate and Government incomes will definitely be reduced. With less money in hand, any optimistic forecasts are just just baby sitting talks.
We cannot escape from this crisis, we must learn to analyze the root cause of the crisis, react carefully and being able to invent some innovative ideas to resolve all obtacles.
As Malaysian, we must wake up now, we must learn and always learn, otherwise this type of crisis will be even worse in future and keep washing away our assets and belongings.
May 26th, 2011 at 6:29 am
The waste of money cures itself, for soon there is no more to waste. ~M.W. Harrison
December 11th, 2011 at 7:20 am
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