1.75% OPR is bottomless if Malaysia’s economy severity continues

KUALA LUMPUR 16 July - Maybank Investment Bank Research (Maybank IB) warned the 1.75% overnight policy rate (OPR) should not be seen as the floor as Bank Negara Malaysia (BNM) is believed to keep the door open for additional easing if needed.

Despite Maybank IB’s economic research expects a dovish pause for the rest of 2020, however the OPR does not remain given the dovish Monetary Policy Committee (MPC) of BNM statement.

“BNM cut the OPR by 25 basis points to 1.75% on 7 July, against our expectation of a ‘dovish hold’ though in line with consensus view,” noted Maybank IB in its report. 

BNM in its MPC recent statement highlighted the pace and strength of the recovery remain subject to downside risks emanating from both domestic and external factors. 

“These include the prospect of further outbreaks of the pandemic leading to re-impositions of containment measures, more persistent weakness in labour market conditions, and a weaker-than-expected recovery in global growth,” BNM asserted.

On the global perspective, the Asian United States Dollar (USD) credit steered by risk sentiment of two extremes.

One shows concerns of rising US infections with President Donald Trump wearing a mask for the first time in public, while another on hope of more effective treatments on the COVID-19. 

10-year US Treasury yield fell to as low as 0.57% on Friday before rebounding to 0.64% at the closing for the week.

“Asian USD credit market recorded strong weekly issuance of US$11.3 billion from US$2.7 billion and credit spreads grinded a tad tighter,” said Maybank IB. 

On regional sovereign, the performance was mixed but overall showed a moderate downward shift in yields across China, Korea and Malaysia while Indonesia and Philippines yields were generally 2 to 8 bps lower . - DagangNews.com