SRR cut part of BNM’s tactical maneuvering to support growth momentum, say economists

A general view of the headquarters of Bank Negara Malaysia. — Picture by Yusof Mat Isa
A general view of the headquarters of Bank Negara Malaysia. — Picture by Yusof Mat Isa

KUALA LUMPUR, Nov 8 — The move by Bank Negara Malaysia (BNM) to reduce the statutory reserve requirement (SRR) ratio is part of the central bank’s tactical manoeuvring to support the growth momentum which is in line with market forces.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the SRR cut was aimed at providing additional liquidity to the financial system so banks would have more cash to “play around” since keeping their funds as SRR would not earn them any return.

“Therefore, the additional liquidity would help to stimulate the lending activities at a time when loan growth has been moderating to 3.8 per cent as of September from 7.5 per cent in January this year.

“Using the September figure as a yardstick to gauge how much it (SRR cut) will add the liquidity into the system, the amount of liquidity that would be released is estimated at RM7.4 billion when the SRR is reduced from 3.5 to 3 per cent,” he told Bernama today.

To some degree, Mohd Afzanizam said it could also reduce the cost of funds of a bank, albeit marginally, since keeping cash as the statutory requirement is an opportunity cost to the bank.

Meanwhile, IQI Global chief economist Shan Saeed said market forces had expected BNM to lower the interest rate next year.

“As you know, 41 central banks have lowered their discount rate this year alone. So we are moving towards a lower interest rate regime, globally.

“Taking that into account, I think what BNM has done is aligned with market forces, which is expected and this would help bolster the growth momentum at the macro level. (A) good strategic move from BNM,” he said.

Globally, he said the central banks had taken the sole responsibility in delivering economic outcomes in the current ambiance and prudent monetary policy has become the hallmark of effective policy lever impact at the macro level.

In a statement today, the central bank has announced that the SRR ratio will be lowered to 3.0 per cent from 3.5 per cent effective from Nov 16, 2019.

“The decision to reduce the SRR is undertaken to maintain sufficient liquidity in the domestic financial system. This will continue to support the efficient functioning of the domestic financial markets and facilitate effective liquidity management by the banking institutions.

“The SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy. The overnight policy rate (OPR) is the sole indicator used to signal the stance of monetary policy, and is announced through the Monetary Policy Statement released after the Monetary Policy Committee meeting,” it said. — Bernama

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