KUALA LUMPUR: Bank Negara Malaysia’s overnight policy rate (OPR) cut is a necessary move to provide a relief to the economy despite coming in sooner than earlier expected, economists said.
This is especially true in the face of global uncertainties brought about mainly by the trade tension between the two largest economies in the world, they added.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes the OPR reduction was a pre-emptive measure to ensure the country’s economic growth continues to be sustainable.
“I think we need to view the objective of such policy response that is to provide support to the economy by making monetary condition very accommodative,” he said when contacted by the New Straits Times.
Afzanizam said this essentially would reduce the cost of funds that can help stimulate investment activities.
This will be backed by the revival of mega projects such as the East Coast Rail Link and Bandar Malaysia that would result in higher demand for corporate financing, he added.
Lower OPR would also mean slightly lower monthly commitment for existing mortgages or any financing contracts that have variable rate features, he said.
“Many would ask whether the latest move would impact the ringgit negatively. The OPR cut is part of a very medium-term kind of growth story and that should help the ringgit to appreciate over time,” he added.
Putra Business School business development manager Prof Madya Dr Ahmed Razman Abdul Latiff said analysts had expected the cut to happen in July. But recent developments especially on US-China tariff war had lowered confidence in the market and could slower the growth.
“Hence the reduction in rate is supposed to provide the stimulus by encouraging borrowings and not on savings,” he said.
Socio-Economic Research Centre executive director Lee Heng Guie said the central bank’s OPR cut would provide some relief to the local economy.
“The reduction does not signal that things are getting bad but rather to provide some relief, in light of uncertainties in the external market.
“The cut would also preserve the country’s economic stability that gives some relief to the market and investors,” he said.
Lee believes there will not be another series of rate cut as the government still has the spending to ensure the economy is growing.