Bank Negara Malaysia cuts another 50 basis points and lowers overnight policy rate to 2%

Malaysia’s economy in 2020 could shrink more than initially forecast …. Finance Minister

By Stella Goh – As published in Inve$t Malaysia 8 May 2020 issue

Last Friday (1May), PM Tan Sri Muhyiddin Yassin announced that on Monday (4May) Malaysia will move to Conditional MCO and will reopen nearly all businesses but under strict health standard operating procedures (SOP). This is to help steer the economy recover after having lost almost RM63 billion due to the Covid-19 pandemic. However not all sectors are open so as to better manage the movement of people within a short time. During the MCO, Muhyiddin said Malaysia had absorbed losses of RM2.4 billion each day.

On Monday (4May), the FBM KLCI shed 31.19 points or 2.22% to 1376.59 points from previous Thursday’s close of 1407.78 as investors weighed the prospect of a renewed US-Sino trade tension and the on-going spat over the origin of the Covid-19 virus. The FBM KLCI continued to shed 12.62 points from 1389.55 on Tuesday (5May) to 1376.93 on Wednesday (6May). Meanwhile the headline HIS Markit Malaysia Manufacturing Purchasing Manager’s Index (PMI) has slumped to 31.3 in April from 48.4 in March. 

On Tuesday (5May), Bank Negara Malaysia cut its Overnight Policy Rate (OPR) by 50 basis points (the third reduction) with a total of 100 basis points cut to 2% since starting the year to ease the pain of the Covid-19 impact. According to Bloomberg, it is the lowest level since 2.5% in 2010 according to 14 of 20 economists surveyed.

According to Moody’s Investors Services, banks will be facing a sharp deterioration in asset quality and reduction in profitability from already low levels, while central banks are providing remarkable amounts of liquidity as the government’s strong incentives to support banking systems. The banking institutions may use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) to meet statutory reserve requirement (SRR) effective from May 16 until May 31, 2021. BNM will effectively release RM16 billion worth of liquidity into the banking system. The SRR ratio remains unchanged at 2%.

According to Bank Negara Malaysia, the domestic financial markets saw non-resident portfolio outflow totalling RM17.7 billion (US$4.1 billion) in March as risk sentiments intensified amid heightened uncertainties on the severity of COVID-19 pandemic impact on the economy. The global risk aversion remained elevated despite the large-scale monetary and fiscal stimulus measures introduced worldwide as funds sought safety in more liquid assets such as cash and US Treasury securities. 

According to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, Malaysia’s economy in 2020 could shrink more than initially forecast due to extended curbs on movement imposed to stem an outbreak of Covid-19. Malaysia’s central bank had forecast in April for growth in gross domestic product (GDP) of between -2% and 0.5% this year. 

According to the Department of Statistics Malaysia, Malaysia’s exports fell 4.7% Y-o-Y in March to RM80.1 billion, mainly driven by a decline in exports of electrical and electronics products. Similarly imports also fell 2.7% Y-o-Y to RM67.8 billion in March. Total trade in March was at RM147.9 billion, a 3.8% Y-O-Y decline whereas the trade surplus, compared to a year ago, shrank by 14.2% to RM12.3 billion.

This week, on Thursday (7May) the Ringgit was 4.3241 against USD from 4.3161 on Monday (4May). As at Friday (8May) 10:00 am, the FBM KLCI was at 1384.53

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