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BNM cuts OPR, a positive surprise for economic growth

Posted in Bank Negara Malaysia (BNM)

I just wrote about this recently. Read here: Accommodative stance needs a further boost, lower OPR? Today, it happened. Bank Negara Malaysia (BNM) has cut the overnight policy rate by 25 basis points to 3.00 per cent. This is considered a surprise move as analysts were mostly thinking about a cut only towards end of the year. This is considered a positive surprise cut because the window to cut has opened with the Federal Reserve most likely not increasing rates any further this year.

Standard Chartered Bank Head, Asean Economic Research, Edward Lee said that the cut will mitigate some growth risks even if growth is currently not threatening. He said, “In our view, fundamentals required a cut even though growth was not threatening. But we believe a rate cut will help mitigate some downside risks to growth,” BNM said the cut is due to increased downside risks from global growth prospects especially with the recent Brexit referendum by the UK. Thus, it will continue its accommodative monetary policies which will be pro-growth.

In brief, this cut should happen way before Federal Reserve increases its rates because as usual, if that side ups its rates, people would love US$ more and it will as usual cause Ringgit to lose some value. I think BNM expects Federal Reserve to do nothing for the next 12 months and this cut should help to sustain some growth momentum which has seen increased volatility recently. With lower rates, there may be more investments happening including even in real estate. Let’s keep following and wishing the best for Malaysian economy.

written on13 July 2016

Next suggested article:   Better H2 2016 for Malaysia, GDP growth at 4.4%


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