AmResearch expects Bank Negara to maintain OPR, but raise SRR instead

PETALING JAYA: Bank Negara is likely to maintain the overnight policy rate (OPR) in view of anticipated slower economic growth but may instead increase the statutory reserve requirement (SRR), says an investment research outfit.

In a report issued yesterday, AmResearch said: “We believe Bank Negara would most likely focus more on a pro-growth policy, especially given the slew of data indicating an inevitable slowdown in global and domestic economic growth in the near term.”

OPR is an overnight interest rate set by Bank Negara used for monetary policy direction. It is the target rate for the day-to-day liquidity operations of the central bank.

SRR is a monetary policy instrument available to Bank Negara to manage liquidity and credit creation in the banking system. It is used to withdraw or inject liquidity when the excess or lack of liquidity in the banking system is perceived by the central bank to be large and long-term in nature.

The central bank is scheduled to hold its Monetary Policy Committee (MPC) meeting tomorrow to discuss the next course of action amid easing growth and rising inflation in the region.

AmResearch expects Malaysia's monetary policy to remain accommodative until the year-end and the OPR maintained at 3% after the MPC meeting. However, it predicts that Bank Negara will raise the SRR to 4%, which brings it to the pre-crisis level.

The research house said its assumptions were based on recent comments from authorities such as Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, who said the central bank did not want to overreact to recent inflation data, which suggested that a more accommodative policy would be continued.

However, there is talk that Bank Negara may raise the OPR by 25 basis points to 3.25% at the meeting. A Bloomberg survey of analysts found 3.25% to be the median estimate for an OPR hike.

Hong Kong-based Societe Generale fixed-income strategist Chong Wee-Khoon said in a report that the central bank would attempt to curb hot money inflows and inflationary pressure via interest rate increases.

“Our view is that the moderation of growth seen in the first quarter is unlikely to deter Bank Negara from hiking (the OPR) and to further control liquidity flows. Also, the improving sentiment globally, especially the Greek debt situation, should remove some of the downside growth risk,” he said.

Chong said foreign capital inflows had continued to accelerate and last totalled RM468bil.

Bank Negara last raised the OPR by 25 basis points to 3% in May and the SRR by 200 basis points to 3% in April and May.