KUALA LUMPUR, March 19 — AmInvestment Bank expects Bank Negara Malaysia will cut the overnight policy rate (OPR) by another 25 basis points (bps) to 2.25 per cent at the next Monetary Policy Committee meeting on May 5, 2020, in response to the Covid-19 pandemic.

This would bring the cumulative reduction in OPR to 100bps since 2019, close to the 150bps rate cut during the 2008–2009 financial crisis, the research house said.

"Most central banks have cut interest rates to address the impact of the Covid-19 pandemic and Malaysia is not spared from this,” it said in a note today.

Recently, the Bank of England slashed its benchmark rate by 50bps to 0.25 per cent while the United States' Federal Reserve reduced its rate by 100 bps to 0.25 per cent.

AmInvestment said there is lesser monetary flexibility for Bank Negara to further cut the OPR after the potential reduction in May, in view of the weaker ringgit, which has been impacted by the weakness in oil prices.

"There will be lesser monetary flexibility to further reduce the OPR as this will further weaken the domestic currency, consequently adding pressure to inflation from a higher import cost,” it said.

The ringgit currently stood at 4.37 versus the US dollar compared to an average of 3.38 during the 2008-2009 financial crisis.

According to AmInvestment, there are remaining external uncertainties such as the unresolved trade tension, Covid-19, the collapse in global oil prices as well as domestic political uncertainties that could weigh on the country's gross domestic product growth for 2020.

Nevertheless, the possibility of further cuts to the Statutory Reserve Requirement (SRR) in addition to the 50bps reduction seen in November 2019, would not be ruled out, it said.

The research house predicts some resemblance to the 2008-2009 financial crisis impacted by the fallout in the mortgage subprime market in the US, which also saw oil prices slumped to record lows though not entirely similar to the factors affecting the global economy now.

The 2008–2009 crisis saw the OPR trimmed by a total of 125bps to 2.00 per cent from 3.25 per cent in 2009 before rising by 75bps the following year.

Meanwhile, the SRR was also reduced by 300bps to 1.00 per cent from 4.00 per cent between 2008 and 2009. — Bernama