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BNM trims OPR to 3% on market headwinds

Bank Negara Malaysia (BNM) decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 3% from 3.25% at its Monetary Policy Committee (MPC) today amid weak economic outlook.

This is the first adjustment since January 2018.

“The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively,” the central bank said in a statement today.

BNM said latest developments in Malaysia point towards moderate economic activity in the first quarter of 2019.

“Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector.”

The central bank noted that while domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions.

“The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.”

 

Source: The Sun Daily

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Monetary Policy Statement

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

The global economy continues to expand moderately. While growth outcomes for several major economies were better than expected during the first quarter, underlying economic conditions continue to suggest moderation going forward. Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities. Although the tightening in global financial conditions has eased somewhat, heightened policy uncertainties could lead to sharp financial market adjustments, further weighing on the overall outlook.

For Malaysia, latest developments point towards moderate economic activity in the first quarter of 2019. Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector. Domestically, stable labour market conditions and capacity expansion in key sectors will continue to drive household and capital spending. The baseline projection is for the Malaysian economy to grow within the projected range of 4.3% – 4.8%. However, there are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.

Headline inflation increased to 0.2% in March 2019 (February: -0.4%), due mainly to the less negative transport inflation at -3.0% (February: -6.8%). Underlying inflation, as measured by core inflation[1], remained stable at 1.6% in March 2019. In the immediate term, inflation is expected to remain low mainly due to policy measures. These include the price ceiling on domestic retail fuel prices until mid-2019 and the impact of the changes in consumption tax policy on headline inflation. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

The domestic financial markets have remained resilient, despite periods of volatility primarily due to global developments. While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

Source: Bank Negara Malaysia

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Why is the savings rate in Malaysia on the decline?

The last generation was more disciplined about savings – no matter how little or how much they earned. And they made it a point to instil the savings habit in their children.

However, it seems that these days, Malaysians in general tend to save less.

An article in the theedgemarkets.com touched on this very issue, reporting that the pace of growth of individual savings had weakened in 2017 compared to previous years.

Sunway University Business School professor of economics Dr Yeah Kim Leng said the rising household debt-to-gross domestic product ratio was a contributing factor to declining savings.

He said, “When household debt goes up, you can expect savings and fixed deposit balances to decline as there would be less income available for savings, and [monthly income] would instead go towards financing assets that include property investments.”

Socioeconomic Research Centre executive director Lee Heng Guie said the weaker growth rate of savings could be the result of many having to repay debts using their savings.

Lee said a pick-up in savings was seen from 2011-2012, likely due to the normalisation of the overnight policy rate.

He said, “After the 2008 global financial crisis, the central bank slashed the interest rate, and this started to normalise from 2010 onwards. So the role of interest rates is an important factor here especially for pensioners when deciding where to put their money.”

UOB Malaysia senior economist Julia Goh also said the growth rate of household savings was on the decline.

“The compound annual growth rate (CAGR) of household savings declined from a growth rate of 7% in the periods of 2000 to 2005 and 2006 to 2010, to 6% in 2011 to 2016,” she said in an article in theedgemarkets.com.

It’s true that it’s hard to save more, these days. Let’s talk about those who actually could save IF ONLY they did not buy that new handbag, that new handphone or take those weekly trips to the cafe for a RM15 latte.

Actually, what the stats continue to tell us is that the disparity in income will likely become wider everywhere in the world. Earlier article here.

Those who can somehow save and use their savings to invest to earn higher returns will likely be better off many years in the future compared to those who do not save at all.

Whether it’s an investment into equity for good returns at low management fee or buying a property and letting it increase in price slowly, all these will help even as the savings rate continues to decline.

Better understand it and start early. Starting LATER will come sooner than we think.

 

Source: Free Malaysia Today

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Bank Negara keeps OPR unchanged at 3.25% with inflation seen to stay low

KUALA LUMPUR (March 5): Bank Negara Malaysia’s Monetary Policy Committee (MPC) has decided to keep the overnight policy rate (OPR) at 3.25% at its meeting today, as it anticipates that Malaysia’s growth would be sustained in 2019 with continued support from private sector spending, while inflation would remain low in the immediate term.

It also sees stable labour market conditions and capacity expansion in key sectors to continue to drive household and capital spending, though support from the external sector is expected to soften in tandem with moderating global growth momentum.

“On balance, the baseline forecast is for the Malaysian economy to remain on a steady growth path. However, materialisation of downside risks from unresolved trade tensions, heightened uncertainties in the global and domestic environment, and prolonged weakness in the commodity-related sectors could further weigh on growth,” the central bank said in a statement.

It said this after noting that global growth momentum has been slowing with unresolved trade tensions remaining a key source of risk that is affecting global trade and investment activities.

“Tighter global financial conditions and elevated political and policy uncertainty could lead to financial market adjustments, further weighing on the overall outlook,” it added.

Bank Negara Malaysia

Inflation restrained by policy measures
In terms of inflation, the central bank said it is expected to remain low in the immediate term mainly due to policy measures that include the lower price ceiling on domestic retail fuel prices until mid-2019, and the impact of the changes in consumption tax policy on headline inflation.

“For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to be sustained, supported by the steady expansion in economic activity and in the absence of strong demand pressures,” it said.

Hence, the central bank is of the view that “at the current OPR level, the degree of monetary accommodativeness is consistent with the intended policy stance”.

“Recognising that there are downside risks in the economic and financial environment, the MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation,” it added.

Source: Edge Property