PETALING JAYA: Malaysian Rating Corp Bhd (MARC) is of the view that any overnight policy rate (OPR) cut by Bank Negara Malaysia (BNM) is unlikely to stoke significant domestic financial market volatility.
This is because the ringgit has strengthened (1.3% since the beginning of this year) and the US rate hike has paused, its chief economist Nor Zahidi Alias said in its Malaysia: Macroeconomic Update report last Friday.
“We feel that the timing for an OPR cut could not have been better, if it happens in the near term,” he said.
However, he said that concerns over financial market volatility have not faded and hence the ringgit’s volatility may persist.
Nor Zahidi said among the factors that could affect the ringgit in the near term are: prospects of a shrinking current account balance in the wake of a deteriorating external environment in 2019, expectation of a stronger greenback due to its safe-haven status, increasing possibility of softer crude oil prices due to the weaker global economy.
“Adding to this is the uncertainty over China’s policy with regards to renmimbi following trade tensions with the US. Based on past experiences, the ringgit will be adversely affected if the renmimbi weakens significantly against the greenback,” he explained.
MARC believes that the recent tone by BNM in its March Monetary Policy Committee statement provides a signal that the central bank is preparing the market for a slight downward adjustment in the OPR.
The rating agency said the focus on the risks in the economic and financial environment will be given added weight in BNM’s policy-making decisions going forward.
“With inflation falling into negative territory in January and the expectation that Consumer Price Index (CPI) numbers will be lower-than-initially expected, the spread between the OPR and CPI has widened the most since August 2009.
“The benchmark bond yields for the 10-year Malaysian Government Securities have also reacted in tandem, slipping to below 4% for the first time since April 2018.”
Meanwhile, MARC said the continuing decline in the growth of household debt and its ratio to total household debt in 2018 are a credit positive for Malaysia.
“The share of vulnerable borrowers – those earning less than RM5,000 per month – has also declined slightly to 39.8% of total household debt from 40.6% in the preceding year.”
Source: The Sun Daily