By Sharina Ahmad
BANK Negara Malaysia’s (BNM) recent announcement that the Statutory Reserve Requirement (SRR – interest-free deposits to be kept with the central bank) ratio will be lowered by 100 basis points from 3% to 2% effective March 20 will be positive for the property sector.
This step will reduce borrowing costs for businesses, encourage spending, reduce loan repayment and increase liquidity in the market, Raine & Horne International Zaki + Partners Sdn Bhd Associate director James Tan Keen Meng told FocusM.
“It will definitely help not just the property sector but also the market as a whole. It also will help the property market by giving it a small boost. However, socio-political-economic uncertainty is having a bigger impact on the market.
“The cut in the SRR will increase liquidity in the financial system. During the 1997/98 financial crisis, the SRR was reduced from 10% to 8%. BNM did the same in 2010 to around 1%,” said Tan.
Property investment site kopiandproperty.com founder Charles Tan told FocusM that this will result in banks having more funds to give out loans or to invest for returns.
“If banks chose to invest these funds in the stock market, for example, this will be supportive of the market in general.
“Within Bursa itself, there are certainly a lot of undervalued stocks currently where the prices may have been driven more by sentiment instead of business fundamentals.
“Beyond this, business owners could also borrow for their expansion and someone thinking of buying a property may also get their loans approved. This is another pre-emptive measure to support a weakening of economic growth due to the Covid-19 effects.”
In addition, each principal dealer (PD) is able to recognise Malaysian Government Securities (MGS) and Malaysian Government Investment Issue (MGII) of up to RM1 bil as part of the SRR compliance.
This flexibility to the PD is available until March 31, 2021. These combined measures will release approximately RM30 bil worth of liquidity into the banking system.
The PD system in Malaysia was introduced in 1989 as part of initiatives to develop the primary and secondary markets of public debt securities. This includes building a stable demand for government, BNM and BNM Sukuk Bhd issuance, and trading these papers in the secondary market to create liquidity. – March 20, 2020