Malaysia Unexpectedly Lowers Reserve Ratio While Resisting Rate Cut Calls

(Bloomberg) --

Bank Negara Malaysia unexpectedly cut its reserve ratio after keeping its main policy rate unchanged this week.

The Statutory Reserve Requirement will be lowered to 3% from 3.5% effective Nov. 16, the central bank said in an emailed statement. The move is meant to ensure enough liquidity in the domestic financial system and isn’t a signal on the monetary policy stance, it said.

Malaysia has held borrowing costs unchanged since kicking off Asia’s easing trend with a rate cut in May, with central banks from India to the Philippines taking more aggressive action to spur growth in their economies. Some analysts predict Bank Negara will ease monetary policy next year as the global downturn worsens, after the central bank maintained its overnight rate at 3% at its final meeting of the year this week.

“The move is interesting in that they left interest rates unchanged,” said Prakash Sakpal, an economist at ING Groep NV in Singapore. “Today’s move signals that there is probably slower growth in forthcoming data.”

Slowing Growth

Malaysia is set to announce its third-quarter gross domestic product data on Nov. 15. Annual expansion of 4.9% in the April to June period was the fastest pace in more than a year.

Trade numbers have since begun to show strain from the U.S.-China tensions. September exports slid by the most in three years as shipments to most of its largest trading partners declined.

The central bank had warned that growth will be subject to “downside risks” mainly due to the uncertain global economy, but still expects the pace of expansion to be within projections this year. Malaysia sees economic expansion at 4.7% in 2019 and 4.8% next year.

“We see the SRR cut as another preemptive measure by the central bank to broadly shore up economic growth,” said Jennifer Kusuma, senior Asia rates strategist at Australia & New Zealand Banking Group Ltd., who estimates the move will release about 7.5 billion ringgit ($1.8 billion) of liquidity into the system.

The benchmark FTSE Bursa Malaysia KLCI Index erased earlier losses after the reserve ratio announcement to close unchanged, while the Bursa Malaysia Finance Index rose to the highest level since Aug. 9.

--With assistance from Chan Tien Hin.

To contact the reporters on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net;Yantoultra Ngui in Kuala Lumpur at yngui@bloomberg.net

To contact the editors responsible for this story: Yudith Ho at yho35@bloomberg.net, Clarissa Batino

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