No need to sweat, interest rate stays the same

Yes, this has been expected but no one knows until it is announced right? Bank Negara Malaysia (BNM) has maintained the overnight policy rate (OPR) at 3.25%. It said that the stance of supporting growth remains the same. With the current negative sentiment as well as low inflation, it is better to have a rate which is low enough to encourage investment and economic activities. BNM said that growth remains even if the pace has moderated. The latest numbers are all pointing to a slowdown. Retail even showed a negative growth for Q2 2015! Read here: Retail sales still growing BUT forecast is lowered again
Two major reasons supporting growth include the people’s adjustment to the GST and a stable employment market which contributes to continuous wage growth as well. One point to note is that there has been some negative news about retrenchment activities in Malaysia recently. MAS, CIMB and JVC are the three widely reported ones. However, according to HLIB Research, the current retrenchment trend reflect mainly adjustment to business cycle as well as cost reduction. Currently, this is still considered one-off and temporary.
Domestic economy will remain the key drive of growth. One look at the world economy would tell us the same picture. Of course, despite the current weaker sentiment, inflation is likely to be higher due to impact from GST and the higher fuel prices recently. BNM expects these to moderate towards the second half of 2016. Ringgit has been depreciating but where the domestic financial system is concerned, there remains ample liquidity. Banks are also at very strong levels with strong capital and liquidity buffers.
It’s not hard to see if the conditions are getting tougher. For example, if it gets almost impossible to borrow loans. This would point to the sign that the banks no longer lending because they are afraid of bad loans building up etc. Currently, I have not read of any wide-spread loan rejections. In fact, the loan rejection numbers are actually decreasing. Read here: Easier to get loan approval, a good sign?  Yes, my personal belief remains the same. Malaysia is not going to suddenly spin into a technical recession and that the Ringgit remains undervalued based on the existing fundamentals. So, I am still buying selected stocks and will keep them for a while.
written on 10 July 2015
next suggested article: IF interest rate up tomorrow, are you sweating now?