BNM unlikely to raise OPR in Ramadan month, says M&A Securities

by **Cals** Thu 10 Jul 2014, 02:26

Business & Markets 2014

Written by Levina Lim of theedgemalaysia.com

Wednesday, 09 July 2014 09:53

KUALA LUMPUR: Bank Negara Malaysia (BNM) is unlikely to raise the overnight policy rate (OPR) at the upcoming monetary policy committee (MPC) meeting as a rate hike during the Ramadan month is likely to burden the people, said M&A Securities Sdn Bhd in a report yesterday.

“Although we expect the policy rate will be adjusted this year but we are sceptical that the government will allow that to be done in this holy month of Ramadan.

“If many are not aware, the policy decision would need to get the Cabinet’s endorsement first. Being a caring government that would like to avoid political backlash — we think that the government would prefer BNM to defer that to the September MPC meeting,” said its head of research Rosnani Rasul.

BNM will hold its fourth MPC meeting tomorrow. Analysts have predicted that the OPR will be increased by 25 basis points (bps) to 50 bps due to inflationary pressure. A revision in the OPR will be the first in the last three years.

Rosnani said on the back of rising cost of living and stress over the impending goods and services tax, which will see prices of goods and services being subject to pressure, the government is unlikely to allow any adjustment that will prove to be an additional burden to the people.

“There is a small chance that the government would execute this in our opinion,” she said.

Meanwhile, M&A Securities noted that the high-risk hire purchase loan segment, which is currently experiencing increasing default in the financial system, is a cause for concern due to it being an indicator of financial imbalance.

“This is worrying especially in the environment of inflationary pressure as a borrower would usually default on hire purchase loans first before anything else. Tough measures are needed to clamp this,” she said.

According to Rosnani, the absolute amount of non-performing loans jumped to RM2.1 billion in April against RM1.8 billion on average in 2013.

“We think BNM would like to avert a bigger avalanche if the policy rate continues to be accommodative. The adjustment in policy rate would also along the way clamp the steady rise in housing prices in the country especially in major towns, for example KL, Penang, Johor Baru,” she said.

“The adjustment in policy rates is due to financial imbalance and not so much inflationary pressure.”

This article first appeared in The Edge Financial Daily, on July 9, 2014.