Bank Negara announces reduction of Overnight Policy Rate by 25bps to 1.75%

The Monetary Policy Committee (MPC) of Bank Negara Malaysia has announced the reduction of the Overnight Policy Rate (OPR) by 25 basis points to 1.75 percent.

The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.00 percent and 1.50 percent, respectively.

According to the central bank, the reduction in the OPR provides additional policy stimulus to accelerate the pace of economic recovery. The MPC will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth.

The Bank will continue to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery.

OCBC Bank’s economist, Wellian Wiranto says the bank had expected BNM to be on hold today to leave space to act in
September closer to the end of the loans moratorium, but recent news flow about 2nd wave lockdowns might have brought the risk of another slap on global economy too forcefully for them to wait.

“With today’s 25bps cut, the OPR now stands at a historic low of 1.75%, a testament of just how unprecedented our current situation has been,” said Wiranto.

OCBC further stated that the reduction in the OPR provides additional policy stimulus to accelerate the pace of economic recovery.

Wiranto highlighted that the easing may be just as much about bolstering Malaysia’s defences against the onslaught of what may come as spurring the ongoing recovery.

Following the move by the central bank, CIMB Bank Berhad  and CIMB Islamic Bank Berhad will also affect a corresponding 25 basis point reduction in their Base Rate and Fixed Deposit / Fixed Return Income Account-i Board Rates.

Similarly, all financing facilities based on Base Lending Rate (“BLR”) and Base Financing Rate (“BFR”) will be reduced by 0.25 percent. All rate changes will take effect on July 13.

RHB Banking Group has also announced it has revised its Base Rate (BR) and Base Lending Rate (BLR) downwards by 25 basis points effective July 13, in line with the reduction in the Overnight Policy Rate (OPR) by Bank Negara Malaysia.

RHB Bank Berhad, RHB Islamic Bank Berhad and RHB Investment Bank Berhad will reduce its BR from 2.75 percent to 2.50 percent per annum, and will also revise the BLR from 5.70 percent to 5.45 percent per annum.

The move comes after the severe economic impact that was caused by the Covid-19 outbreak. Although a trough is expected in the second quarter, broad-based weakness in labour markets and precautionary behaviour by households and businesses could affect the recovery going forward.

The nation’s economic activity contracted sharply in the second quarter of the year, due to measures introduced to contain the pandemic globally and domestically. Following the gradual and progressive re-opening of the economy since early May, economic activities have begun to recover from the trough in the second quarter.

The central bank has also pointed out that fiscal stimulus packages, alongside monetary and financial measures, will continue to underpin the improving economic outlook.

The projected improvement in the domestic economy is expected to be further supported by a gradual recovery in global growth conditions. The pace and strength of the recovery, however, remain subject to downside risks emanating from both domestic and external factors.

Inflationary pressures are expected to be muted in 2020 while average headline inflation is likely to be negative this year, primarily reflecting the substantially lower global oil prices.

“The risks of a broad-based and persistent decline in prices are assessed to be limited as economic activity resumes and demand conditions improve. Nevertheless, the outlook remains significantly affected by global oil and commodity prices. Underlying inflation is expected to be subdued and within expectations,” said Bank Negara Malaysia.



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