KUALA LUMPUR: Bank Negara Malaysia’s (BNM) overnight policy rate (OPR) cut yesterday is considered as a “tactical” move to keep the growth momentum intact and provide sufficient liquidity in the market, an economist said today.
“It gives banks a clear forward guidance that interest rate would be lowered in a structured manner in the months to come,” IQI Global chief economist Shan Saeed said.
While central banks around the globe would keep a lower discount rate to ward off a recession, “Bank Negara is one of the few central banks which has a lot of room to manoeuvre through monetary policy, and it wants to keep the fair market value of the ringgit to meander around 4.05 to 4.11 against the US dollar in line with market expectation,” he said.
He pointed out that since last year, IQI Global had shared with its clients that interest rate would be trading between 2.5% and 3.0% in 2020.
“BNM would never allow the ringgit to appreciate considerably as it’s going to hurt exports in the short run,” he said.
He added that the fair market value of the ringgit is expected to remain between 4.05 and 4.11 against the US dollar in the first quarter of this year.
Meanwhile, United Overseas Bank (Malaysia) Bhd (UOB) senior economist Julia Goh said only two of 26 economists polled by Bloomberg expected the rate cut, with UOB Malaysia itself penciling in a rate cut in the first quarter.
She said BNM is now expected to keep the OPR on hold to allow the stimulus effect to run through the economy.
“Wednesday’s rate cut helps to extend the stimulus effect from the previous OPR cut in May last year,” she added.
According to Goh, the next key data to watch is the fourth quarter 2019 and full-year 2019 gross domestic product that would be released on Feb 12 while the next scheduled Monetary Policy Committee meeting would be on March 2 and 3.
Yesterday, BNM announced the reduction in OPR by 25 basis points to 2.75% from 3% previously. – Jan 23, 2020, Bernama