KUALA LUMPUR: There remains a possibility of Bank Negara Malaysia (BNM) cutting the Overnight Policy Rate (OPR) by another 25 basis points (bps) if there is a need to further support private expenditure and help ease upwards pressure on non-performing loans, says AmBank Research.
In a research note today, it said the drag on the economy could continue into the second quarter of 2020, depending on the severity of the COVID-19 impact that was already disrupting global supply chains and shipping.
The research house also said there was room for lowering the Statutory Reserve Requirement (SRR) for banks, an instrument to manage liquidity, by 50-100 bps.
“By freeing up 50 bps, it would inject around RM8 bil to RM9 bil which could go into the Special Investment Fund to aid small and medium enterprise businesses,” it explained.
AmBank Research said the recent OPR cut might provide some short-term positive impetus for the ringgit, which would be more likely to appreciate against the US dollar by 0.1%-0.2%.
However, it said, any movement in the ringgit would be influenced by ongoing external and domestic challenges, adding that the rate cut would probably cause bond yields to fall 1.5%-2% in the near term.
“Meanwhile, we see only minimal impact to banks’ earnings with respect to March’s rate cut. Based on our estimates, for every 25 bps rate cut in the OPR, the banks’ earnings will be impacted by 1%-3% while the net interest margins will be impacted by two to four bps.
“The impact of any OPR change will be short term (estimated one to two quarters) as repricing of deposits will eventually catch up with the change in lending rates,” it added.
On the other hand, the research house said, BNM’s decision to cut the OPR by 25 bps on Tuesday to 2.5% fell in line with its view.
“With the OPR cut complementing the RM20 bil economic stimulus package, it should help address the downside risks on the economy from the coronavirus impact more than trade issues,” it said. – March 4, 2020, Bernama
