BANK Negara Malaysia (BNM) reduced the Overnight Policy Rate (OPR) by 50 basis points to 2% today. The ceiling and floor rates of the OPR corridor are correspondingly reduced to 2.25% and 1.75%, respectively.
BNM also announced that Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) can be used by banking institutions to fully meet the SRR compliance effective May 16.
This flexibility is available until May 31, 2021. This will release approximately RM16 bil worth of liquidity into the banking system. The Statutory Reserve Requirement (SRR) ratio remains unchanged at 2.00%.
This measure is part of BNM’s continuous efforts to ensure sufficient liquidity to support financial intermediation activity.
The SRR is an instrument to manage liquidity and BNM said it is not a signal on the stance of monetary policy. The OPR is the sole indicator used to signal the stance of monetary policy.
With the decision today, the OPR has been reduced by a total of 100 basis points so far this year, complementing other monetary and financial measures by BNM as well as fiscal measures this year.
Together, these measures will cushion the economic impact on businesses and households and support the improvement in economic activity. The Monetary Policy Committee (MPC) will continue to monitor the outlook for domestic growth and inflation, BNM said.
Global economic conditions have weakened significantly. Measures to contain the Covid-19 pandemic have disrupted economic activity across most economies.
Recent indicators show that the global economy is already contracting, with global growth projected to be negative for the year. Financial conditions have also tightened amid elevated risk aversion and uncertainty.
For Malaysia, domestic economic conditions have similarly been affected by the pandemic. Widespread containment measures globally, international border closures and the consequent weak external demand environment will exert a larger drag on domestic economic activity.
The Movement Control Order, while necessary to contain the spread of the virus, has also constrained production capacity and spending.
Labour market conditions are also expected to weaken considerably. Economic conditions would be particularly challenging in the first half of the year. The fiscal stimulus measures, alongside monetary and financial measures will, however, offer some support to the economy.
With more businesses allowed to operate under the Conditional Movement Control Order, economic activity is projected to gradually improve. The outlook for growth continues to be subject to a high degree of uncertainty, particularly with respect to developments surrounding the pandemic, BNM said.
Inflationary pressures are expected to be muted in 2020, with average headline inflation likely to be negative this year, due mainly to projections for substantially lower global oil prices.
Nevertheless, the outlook remains significantly affected by global oil and commodity prices, as well as evolving demand conditions. Underlying inflation is expected to be subdued given the projections of weaker domestic growth prospects and labour market conditions.
According to BNM, the financial sector is sound, with financial institutions operating with strong capital and liquidity buffers. Liquidity remains ample, augmented by liquidity injections by BNM.
Since March 2020, it has provided additional liquidity of approximately RM42 bil into the domestic financial markets via various tools including outright purchase of government securities, reverse repos and the reduction in SRR.
BNM said it stands ready to provide liquidity in the interbank market to ensure orderly market conditions, conducive to support financial intermediation activity. – May 5, 2020
