Bank Negara Malaysia expected to cut Overnight Policy Rate by another 75 basis points
By Stella Goh – As published in Inve$t Malaysia 24 April 2020 issue
On Thursday (23Apr) the PM announced the further extension of MCO to May 12 but with two groups of people being allowed to travel. The first group are students who have been in their campuses being allowed to return home but only after taking the Covid-19 test. The other group are those who had been in their relative kampungs since March 18, when the MCO was first implemented, will be allowed to return to their own homes.
On Monday (20Apr), the FBM KLCI surged 5.78 points or 0.41% from previous Friday’s close of 1407.34 to 1413.12 but has reversed the trend and fell to 1381.89 on Wednesday (22Apr) as a confluence of weak crude oil prices and pandemic fears continued to pummel the global equity market. As at Friday (24Apr) 10:00 am, the FBM KLCI was at 1372.08.
Malaysia’s inflation rate fell only 0.2% YOY to 120.9 points in March with much credit going to the lower fuel costs. However the drop was countered by the rise in housing, utilities, food and non-alcoholic beverages. The full year headline inflation forecast is expected to be at zero % based on weak oil prices, discounts on household electricity and overall weak demand.
Bank Negara Malaysia (BNM) is expected to reduce the Overnight Policy Rate (OPR) by 50bps in May, followed by a further 25bps cut in the second half of 2020 in anticipation of a contraction in the country’s economy and subdued inflation in 2020. The reduction in the Overnight Policy Rate (OPR) is intended to provide more accommodative monetary environment to support the projected improvement in economic growth amid the price stability. The Monetary Policy Committee (MPC) will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. In anticipation of the interest rate cuts and slower loans growth due to the challenging business environment, banks’ earnings outlook are expected to be slashed.
On Monday the US crude oil futures plunged by almost 300 percent to its historical lowest. For the May delivery of US benchmark crude, the West Texas Intermediate (WTI) sank to a new low of minus $37.63 a barrel, a staggering level which essentially means the producers would be paying buyers to take oil off their hands. This resulted in the oil and gas (O&G) stocks on Bursa Malaysia to take a beating after the US crude oil price collapse.
This week, with the weak crude oil prices hogging the news, the Ringgit against the USD was 4.3600 on Thursday (23Apr) from 4.3745 on Monday (20Apr).