Going forward, downside risks to global growth remain high following uncertainty over the growth momentum and policy shifts in major economies, and unresolved issues post the European Union referendum in the United Kingdom.For Malaysia, growth moderated slightly in the second quarter of the year, following weaker net exports and a drawdown in stocks. “The cut by Bank Negara will help provide a floor to the domestic economy to maintain growth above 4.0 per cent in the quarter”, it said.
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She said that if measures are needed to boost the economy, BNM might cut its statutory reserve requirement ratio (SRR).
“The OPR (overnight policy rate) fell to 2% in 2009 during the last global financial crisis, [and] bearing in mind that we are not in a crisis mode now, BNM communicated that the OPR adjustment in July was a pre-emptive move meant to ensure that the Malaysian economy continues on a steady growth path amid stable inflation”.
Prime Minister Najib Razak announced a revised 2016 budget in January, trimming the year’s growth projection to 4.0-4.5 percent from 4.0-5.0 percent.
Less than two weeks after the vote, Bank Negara Malaysia (BNM) made its first rate cut in seven years, slashing the overnight policy rate by 25 basis points to 3.00 percent. So BNM will likely keep the key at 3% at today’s meeting before evaluating the need for further easing in November, said Goh. Investors do not seem to expect another move during the central bank’s upcoming meeting on 7 September. Inflation is expected to be at the lower end of the 2 to 3% range for 2016 and to remain relatively stable in 2017 given the environment of low global energy and commodity prices, and generally subdued global inflation.Domestic financial conditions have remained stable since the previous MPC meeting with financial markets continuing to function in an orderly manner.
HSBC cautioned that BNM needs to be extremely judicious in its easing, as too aggressive an approach could leave it vulnerable to capital outflows, which might be challenging to manage.
In a statement here Tuesday, BNM said, the reserves position was sufficient to finance 8.1 months of retained imports and was 1.2 times the short-term external debt.
However, a lot of them have tilted their view towards a cut in November at the last meeting for the year.
Bank Negara will issue the monetary policy statement this afternoon. However, according to HSBC Global Research, there is a possibility that the BNM might cut the OPR again to make policy accommodation more significant.
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The ringgit weakened about 1 per cent in the past month, the worst performer in Asia.
