OPR cut due to external factors: Research houses

Bank Negara Malaysia’s (BNM) decision to cut the overnight policy rate (OPR) by 25 basis points to 3.0 percent yesterday, was due to external factors that have dampened global trade and investments, said research houses of banks.

Maybank IB Research said the trade war risk amplified over the weekend as US President Donald Trump renewed threats to raise tariffs on US$200 billion in imports from China by 25 percent by this Friday from the 10 percent imposed in September last year.

“This is to be followed by a 25 percent tariff on the remaining US$325 billion in Chinese exports to the US if both sides are unable to close a trade deal this week,” it said in its research note.

Affin Hwang Investment Bank Bhd also concurred with the sentiment as prolonged external conflicts had dragged down Malaysia’s gross domestic product (GDP) in the first quarter of this year (1Q 2019) with global demand slowing.

It said the country’s industrial production index in February slowed for the second consecutive month to an eight-month low of 1.7 percent year-on-year (y-o-y), compared with 3.2 percent in January.

“We expect Malaysia’s real GDP growth to slow to 4.3 percent y-o-y for 1Q 2109, compared to 4.7 percent in 4Q 2018. Our projection for GDP growth for 2019 stays at 4.7 percent, due to a stable labour market which will lead to capital spending,” it said.

Meanwhile, RHB bank in its economic view today said besides unresolved trade tensions which had dampened the global economy, heightened policy uncertainty could lead to sharp financial market adjustments, further weighing on the overall outlook.

“Although BNM retained its GDP forecast at 4.3 percent to 4.8 percent for 2019, it, however, highlighted an increase in downside risks stemming from heightened uncertainties in the global domestic environment, trade tensions and extended weakness in commodity-related sectors,” it added.

Alliance DBS Research in its economic focus today said the OPR cut was in anticipation of a possible weakening in Malaysia’s GDP in upcoming quarters.

“The cut will likely provide a boost towards economic growth as banks lower their lending rates, which could indirectly increase consumers’ spending power,” it said.

On further rate cuts, AmBank Research said there is a chance of a second later this year or in early 2020, should data remain weak, while RHB Bank, Maybank IB and Affin Hwang expect the OPR to remain at 3.0 percent for the rest of 2019.

- Bernama