Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on April 3, 2019

KUALA LUMPUR: In the event of an overnight policy rate (OPR) cut, banks’ net interest income will be reduced, according to RHB Banking Group managing director (MD) Datuk Khairussaleh Ramli.

“Normally, for any interest rate reduction, banks will have a reduction in net interest income. But hopefully over time, there will also be adjustments in deposit rate following the reduction in interest rate,” he told reporters yesterday.

While acknowledging that inflation in the country is subdued, Khairussaleh stressed that any decision on whether to cut the rate or not by the central bank will be data-driven.

For now, the group is keeping to the view that the central bank will hold the key rate steady at 3.25%.

“In our case, we are still holding [to the view that] the rate will be steady. But obviously if the data says otherwise, then we believe Bank Negara [Malaysia] will make decisions accordingly,” he told reporters yesterday.

Expectations have been on the rise that the central bank will cut its key rate, given downside risks to growth prospects, low inflation, and following the bank’s more dovish tilt seen in its Annual Report 2018.

In particular, it wrote about “building policy space and buffers pre-emptively” and stated that “the thrust of monetary policy in 2019 is to remain accommodative to ensure supportive conditions for sustainable economic growth amid the subdued inflation outlook.

Khairussaleh went on to say that any rate decrease will benefit borrowers, and “help them alleviate any burdens as far as their financial commitments are concerned”.

He also acknowledged that a reduction in the key rate will facilitate and accommodate further borrowings, but stressed that other measures also need to be taken to ensure an “accommodative” business environment for banks.

“That (adjusting the OPR) is on the supply side. But we will also need to look on the demand side. This is where fiscal measures are also important to be looked at, not just monetary measures,” Khairussaleh said.

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