OPR up 25 basis points to 2.75pc

KUALA LUMPUR: Bank Negara Malaysia has decided to raise the overnight policy rate (OPR) by 25 basis points to 2.75 per cent.

The floor and ceiling rates of the OPR corridor are correspondingly raised to 2.50 per cent and 3.00 per cent respectively, the central bank said in a statement today.

"The Monetary Policy Committee considers the new level of the OPR to be appropriate and consistent with the current assessment of the growth and inflation prospects," Bank Negara said.

"The stance of monetary policy continues to remain accommodative and supportive of economic growth," it said.

Bank Negara said global recovery had continued in the second quarter, supported by robust and broad-based growth in most emerging economies, in particular Asia, and a moderate recovery in the advanced economies.

"Nevertheless, volatility in the international financial markets has increased following concerns over the ongoing sovereign debt crisis in several advanced economies," it said.

"These developments have raised uncertainties on the potential impact on the international financial system and the global economic activity. Going forward, while the assessment is for the global recovery to continue, there is increased risk that the global growth momentum could moderate."

On the domestic economy, Bank Negara said recent trends in industrial production, financing activity, labour market conditions and external trade indicated that economic activity had remained robust in the second quarter.

"Going forward, while external developments may result in some moderation in the pace of growth, the domestic economy is expected to remain strong with continued improvements in private consumption and investment, and augmented by public investment spending," it said.

"Domestic inflation recorded modest increases in April and May, mostly on account of supply factors. Prices are expected to rise at a gradual pace in the coming months, in line with the continued improvement in domestic economic conditions and taking into account possible adjustments in administered prices."

Overall, inflation is, however, expected to remain moderate going into 2011, the central bank said. - Bernama

Overnight policy rate raised 25 basis points to 2.50%

KUALA LUMPUR: Bank Negara has raised the country's overnight policy rate by 25 basis points or 0.25%, to 2.50%.

The move was to further normalise monetary conditions, governor Tan Sri Dr Zeti Akhtar Aziz told a press conference here Thursday.

She said the stance of monetary policy continued to remain accommodative and supportive of economic growth.

Fixed deposit rates on the rise

This follows Bank Negara’s move to raise OPR

PETALING JAYA: Depositors will be getting higher returns for their savings as banks raise interest rates for fixed deposits (FD) in tandem with the rise in lending rates.

In a telephone survey, StarBiz found that most banking groups, with the exception of EON Capital Bhd, and Alliance Financial Group Bhd (AFG), had already increased their FD rates by about 0.25% yesterday.

Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd, RHB Capital Bhd and Affin Holdings Bhd have also upped their savings rates.

Kua Wei Jin says the FD will also go up when the Klibor or OPR increases
When contacted, EON Cap group CEO Michael Lor said the bank would be raising its base lending rate (BLR) and FD rate by 25 basis points soon.

“With the improving economy, we are confident that this latest rates rise would not affect our growth momentum. Also, Bank Ngeara’s disciplined approach on interest rates augurs well for the economy as a whole,” he added.

This is in response to Bank Negara’s move to lift the overnight policy rate (OPR) by 25 basis points last week.

An analyst with a local stockbroking firm said the rise in FD rates by about the same quantum as the BLR would result in generally, thinner margins for banks.

“This is a surprising move by the banks. Historically, the quantum of increase in FD rates is lower than the rise in BLR.

“The same quantum of increase could be due to the fact that deposit rates are still so low thus, making it affordable for banks to do so. This will also enable banks to attract more depositors and increase their deposit base in anticipation of higher loans growth as the economy improves,” she said.

In addition, the expectations of more OPR increases going forward would enable banks to boost margins further, the analyst said, adding that the recent 25-basis point increase in OPR was small.

TA Securities noted that although the rise in OPR would help boost banks’ net interest margin slightly – since the industry’s average lending rate had been hovering near its all time low of 4.83% – the impact would be minimal.

This is because competition in the industry is expected to intensify as banks aggressively look to grow their asset base.



In general, a rising interest rate environment will bode well for banks with a low exposure to fixed-rate loans and a low proportion of current accounts and saving accounts (CASA) and alternative deposits.

According to ECM Libra, among banking stocks, AFG would have the greatest potential for earnings accretion due to its high proportion of variable rate loans at 84% as well as high proportion of CASA at 37%.

“We believe key beneficiaries include AFG, CIMB, Maybank and RHB Capital due to a combination of high exposure to floating-rate loans (average around 70%) and large pool of CASA deposits (average around 30%),” TA said.

The Kuala Lumpur Interbank Offer Rates (Klibor), which serves as the benchmark rates for interbank lending and borrowing activities, has also increased by 20 to 25 basis points across the board since March 4.

Hong Leong Bank Bhd chief operating officer Kua Wei Jin said banks would have to borrow at higher rates from the interbank market if there was a hike in OPR.

“The FD, being one of the sources for banks to fund their loans, will also go up when the Klibor or OPR increases,” he said.

Nevertheless, Citibank Bhd consumer bank treasurer Lee Chet Leng noted that FD rates were not linked one-to-one to Klibor as they were often driven by different factors.

“FD rates are a reflection of market-based factors such as Klibor, the competitive and regulatory environment and the desire for banks to achieve a particular nature of funding mix,” Lee said.

The AmBank Group has revised the base lending rate (BLR) for AmBank (M) Bhd and the base financing rate (BFR) for AmIslamic Bank Bhd by 25 basis points respectively.

AmBank Group said in a press release that the BLR and BFR would be revised to 5.80% from 5.55% respectively effective yesterday.

Bank Negara ups interest rates

Overnight policy rate increased to 2.25%

PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.

The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.

The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.

“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.

It said going forward, domestic growth was expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies which had expanded strongly in the fourth quarter.

Malaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.

“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.

While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.

Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.

The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.

Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.

Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.

According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.

AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.

“It is needed for a gradual move towards the normalisation of rates,” he said.

At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.

Bank Negara cuts OPR by half percentage point

Worried about a growing risk of an economic contraction this year, Bank Negara has cut the overnight policy rate (OPR) by 50 basis points, or half a percentage point, to 2% as the global economy continues to deteriorate.

In a statement yesterday, the central bank announced the statutory reserve requirement (SRR) would also be cut from 2% to 1% from March 1 to reduce the cost to banks.

The ceiling and floor rates of the corridor for the OPR were correspondingly reduced to 2.25% and 1.75% respectively.

“The major advanced economies are experiencing a deepening economic contraction, while the regional economies are experiencing a rapid slowdown,’’ said Bank Negara in its monetary policy statement.

“The impact of the rapid decline in global demand on trade, production and investment activities in the Asian region has intensified.”

It said domestic economic conditions were expected to continue to remain challenging in the coming quarters with the continued deterioration of the global economy.

“While this has raised the risk of an economic contraction in 2009, the prospects remain intact for an economic recovery once global conditions stabilise given that the economy is not over-leveraged, the financial system remains sound, and the external position is healthy,’’ Bank Negara said.

The central bank said the turmoil in the international financial markets had also been protracted and that while a number of economies had put in place stimulus measures to manage the downturn, their impact on the economy had yet to take effect.

“The downside risks to the global economic outlook have increased significantly,’’ it added.

On Jan 21, Bank Negara cut the OPR by 75 basis points to 2.5% and slashed the SRR from 3.5% to 2%.

“This is the first time since the crisis erupted that the central bank has acknowledged the possibility of the economy registering a contraction this year,’’ said Maybank Investment Bank chief economist Suhaimi Illias.

“They are also reacting to the fourth quarter GDP number that will be released this week.’’

Bank Negara said the international economic and financial environment had deteriorated sharply in the recent quarter and that the Malaysian economy had been adversely impacted by these global developments.

“Exports and industrial production have declined steeply, while private investment activities have slowed down in recent months as businesses scaled back their spending. Consumer sentiment has also been affected by the weakening conditions in the labour market,’’ it said.

With inflation on a moderating trend, Bank Negara said the task of macroeconomic policy was to support domestic demand until conditions in the global economy show signs of normalisation.

“Further measures will be introduced to ensure continuous access to credit as well as to minimise the impact of the economic downturn on specific affected groups,’’ it said.

Bank Negara cuts OPR by 75 basis points

News: Bank Negara has reduced the overnight policy rate (OPR) by 75 basis points to 2.5% and reduced the statutory reserve requirement (SRR) from 3.5% to 2%, effective from Feb 1.

It said on Wednesday the ceiling and floor rates of the corridor for the OPR were correspondingly reduced to 2.75% and 2.25% respectively.

“With the heightened downside risks to growth, the magnitude of the reductions in the OPR and the SRR are aimed to be pre-emptive in providing a more supportive monetary environment for the domestic economy,” it said in a statement released after the Monetary Policy Committee (MPC) meeting.

Bank Negara said the international economic and financial conditions had deteriorated much more significantly in the recent period.

It said the contraction in global demand and trade, combined with the reduction in global commodity prices, had affected the export earnings of many of the regional economies, including Malaysia.

“These contractionary factors have been exacerbated by the protracted turmoil in the international financial markets,” it said.

The central said the urgent implementation of policy measures will be key towards ensuring the Malaysian economy would continue to experience positive growth in 2009.

On inflation, it said the moderating growth and the significantly lower commodity prices had impacted the inflation rate which had continued to decelerate to 4.4% in December 2008.

“This deceleration is expected to continue with the weaker demand conditions and lower imported inflation,” it said.

Bank Negara said given that the Malaysian banking system remained fundamentally sound, the central bank would continue to ensure access to credit to all sectors of the economy, and that the reduction in interest rates would be reflected in lower borrowing costs.

How Overnight Policy Rate (OPR) lowered to 3.25% Affect Us

PETALING JAYA: Bank Negara has cut its benchmark Overnight Policy Rate (OPR) by 25 basis points to 3.25% from 3.50%, and signalled it was ready to cut the rate further.

This was the first rate cut in over five years. The move, which can be considered well-timed as the economy slows, will result in a lower cost of funds for banks. This, in turn, brings down the cost of borrowing for consumers.

With the OPR set at 3.25%, the upper limit will be 3.50% and lower limit will be 3.00%. Interestingly, you might have noticed that the BLR of banks is set 3% more than this upper limit, and short term fixed deposit rate is set close to the lower limit, while long term fixed deposit rate (1 year or above) is set close to the upper limit.

In fact, under the new framework, each banking institution can announce its own BLR based on its cost structure and business strategies. Banking institutions are also no longer be subject to the maximum spread of 2.5 percentage points above BLR. As a result, you might have noticed that the BLR of certain bank is a little bit different from the majority counterparties.

When the OPR is low, more money is released to flow into the market, and expected to stimulate the economic activities. On the other hand, when the OPR is high, more money will flow back to Bank Negara, and expected to slow down the economic activities. This is seen as a way to control the inflation rate.