Bank Negara Malaysia reduces the overnight policy rate (OPR) by 50 basis points(bps) to 2 percent, as expected by economists, their lowest level since the 2009 global financial crisis as the Covid-19 pandemic batters the economy.
Our nation has joined other countries around the world in easing monetary policy as the virus shutters businesses and confines people to their homes.
It is the third cut this year; in January BNM had cut the OPR by 25bps to 2.75 percent, and another 25bps to 2.5 percent in March.
It came a day after the government allowed most businesses to reopen after a six-week lockdown.
The country’s outbreak has been relatively small — it has recorded 6,383* cases and 106* deaths — but prime minister, Muhyiddin Yassin has said the curbs have so far cost the economy RM63 billion.
“Global economic conditions have weakened significantly,” the bank said in a statement, adding that widespread containment measures globally, international border closures and the consequent weak external demand environment will hit Malaysia’s economy.
The government has announced stimulus measures worth billions of dollars to blunt the impact of the virus, including tax breaks and cash aid.
With uncertainty over how fast the global economy will recover from the pandemic, economists did not rule out further easing this year.
OCBC Bank economist Wellian Wiranto said that the central bank “might well cut further again if the pace of recovery… falters even after various lockdowns are lifted”.
While CGS-CIMB research banking analyst Winson Ng expects banks under his coverage to face a steeper decline in net profit in the event of a further 25bps cut in the OPR for this year, which would raise the reduction for this year to 125bps.
For the Malaysian banks under their coverage, they estimate that a 125bps OPR cut would lower banks’ net profits by about 10 percent in 2020F (on a full-year basis).
Ng said among the banks under his coverage, the earnings cuts would be the smallest for AmBank, Public Bank and Affin Bank mainly due to lower floating-rate loan ratios for these banks.
Hong Leong Investment Bank analyst Chan Jit Hoong also commented that the 50 bps cut in the OPR to 2 percent announced by BNM will certainly affect banks’ net interest margins (NIM).
However, he said most banks had anticipated the rate cut and have been proactively managing their FD levels to prevent exposure.