KUALA LUMPUR (April 5): A cut on the overnight policy rate (OPR) is unlikely to stoke significant domestic financial market volatility, opines Malaysian Rating Corp Bhd (MARC).
Citing Bank Negara Malaysia's (BNM) recent March monetary policy committee statement, MARC said it provides the clearest signal that the central bank is preparing the market for a slight downward adjustment in the OPR.
"The timing for an OPR cut could not have been better, if it happens in the near term. This is because the ringgit has strengthened, and the US rate hike has paused," MARC said in a Macroeconomic Update report issued today.
Meanwhile, it noted that concerns over financial market volatility have not faded and hence, the ringgit's volatility may persist.
"Among factors that could affect the ringgit are: (1) prospects of a shrinking current account balance in the wake of a deteriorating external environment; (2) expectations of a stronger greenback; and (3) an increasing possibility of weaker crude oil prices.
"In addition, there is increasing uncertainty over China's policy with regards to the renminbi (RMB) following trade tensions with the US. Based on past experiences, the ringgit will be adversely affected if the RMB weakens significantly against the greenback," it said.
While household debt also remains a concern, MARC concurred with BNM's view that it does not necessarily pose a significant risk to financial stability.
MARC noted that the continuing decline in the growth of household debt and its ratio to total household debt in 2018 are a credit positive for Malaysia.