July’s OPR Cut Unlikely To Signal Start Of Near-term Rate-cutting Cycle -- MIDF Amanah
KUALA LUMPUR, July 9 (Bernama) -- MIDF Amanah Investment Bank does not view Bank Negara Malaysia’s (BNM) 25-basis point (bps) reduction in the Overnight Policy Rate (OPR) to 2.75 per cent as signalling the start of a rate-cutting cycle in the near term.
This is given the still encouraging spending activities in the domestic economy and healthy labour market situation, the investment bank said in a research note today.
“We opine that a targeted support to assist specific industries will be a better approach moving forward instead of further OPR adjustments, at least for the rest of the year,” it said.
On a separate note, it said the ongoing downwards pressure on the Malaysian Government Securities (MGS) market is expected to ease gradually, and therefore the spreads between the MGS yields and OPR will also normalise.
RHB Investment Bank concurred that the OPR is expected to be held at 2.75 per cent for the remainder of the year, provided gross domestic product growth stays within the range of 4.0 to 5.0 per cent.
“We view the July’s OPR cut as being pre-emptive as robust domestic conditions do not warrant a cut at this juncture, with risks broadly concentrated within the external space.
“The move is seen as a measure to support growth and safeguard the domestic economy against potential spillover effects from heightened external headwinds and prolonged trade tensions,” it said, adding that for the upcoming meetings in September and November, officials will likely remain data-dependent.
In contrast, OCBC Bank expects BNM to lower its policy rate by another 25 bps either at its September or November meeting, with inflation likely to remain contained despite subsidy rationalisation and slower growth.
Based on its assessment, even if the RON95 subsidy rationalisation were to materialise in October 2025, with higher prices of 20-25 per cent, it would add 0.5 percentage point (pp) to headline inflation, which is currently tracking 1.5 per cent for 2025.
“The price adjustment would lift headline inflation to 2.0 per cent for 2025 and as such, remain benign enough for BNM’s stance to be growth supportive,” it added.
Meawhile, CIMB Bank is of the view that that the likelihood of another OPR cut beyond July will hinge on incoming data, particularly related to growth and trade dynamics, with trade uncertainty expected to persist.
It said that on the domestic front, the economy remains supported by a healthy labour market, with the unemployment rate declining to 3.0 per cent, signalling firm underlying conditions.
“Inflationary pressures remain contained, with headline inflation projected at 2.2 per cent, while the ringgit has appreciated by 5.2 per cent year-to-date -- helping to ease imported cost pressures.
“These dynamics suggest there is sufficient policy space should downside risks to growth intensify further in the second half of 2025,” it added.
Today, BNM’s Monetary Policy Committee reduced the OPR by 25 basis points to 2.75 per cent, and the ceiling and floor rates of the corridor of the OPR are correspondingly reduced to three per cent and 2.5 per cent, respectively.
The central bank described the OPR reduction as a pre-emptive measure aimed at preserving Malaysia’s steady growth path amid moderate inflation prospects.
-- BERNAMA