Malaysia: BNM reduced rates on COVID-19 panic – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the recent decision by the Bank Negara Malaysia (BNM) to reduce rates in order to mitigate the effects of the coronavirus on the economy.

Key Quotes

“Bank Negara Malaysia (BNM) lowered the Statutory Reserve Requirement (SRR) ratio by 100bps to 2.00% effective 20 March. This does not come as a surprise given sharp foreign selling of domestic equities and bonds, and amid looming concerns over the impact of COVID19 and the Movement Control Order on the economy.”

“To further ease liquidity conditions, BNM announced that each Principal Dealer is allowed to recognise Malaysia Government Securities (MGS) and Malaysia Government Investment Issue (MGII) of up to MYR 1bn as part of the SRR compliance. This flexibility is available until 31 March 2021. Both measures will release approximately MYR 30bn worth of liquidity into the banking system. We estimated that every 100bps cut in the SRR releases approximately MYR 14.8bn into the system.”

“Given the mounting risks at hand as COVID-19 roils the economy and financial markets, we anticipate further measures to follow including a second stimulus package to be announced in 1-2 weeks and further 25bps-50bps cut in the Overnight Policy Rate (OPR).”