Another interest rate cut in 2019 possible, says Kenanga

PETALING JAYA: Kenanga Research foresees the possibility of Bank Negara Malaysia (BNM) opting for another interest rate cut by year-end after a 25 basis point cut in May, given the heightened prospects of a slower global economy.

“BNM has room to embark on another rate cut as soon as September if the economic outlook continues to deteriorate and if the Fed signals another rate cut this year,” the research house said in a report today, referring to the US Federal Reserve.

On the currency front, it is revising its US dollar-ringgit year-end forecast to 4.20 from 4.10 in view that China may allow the yuan to depreciate, a steady fall in oil prices and the higher probability that BNM may cut rates.

BNM’s international reserves rose by 1.2% month-on-month or US$1.2 billion to US$103.9 billion as at July 31, remaining on an uptrend for two consecutive months.

The reserves position is sufficient to finance 7.6 months of retained imports and is 1.2 times the total short-term external debt, the central bank said.

The increase was driven by a rise in foreign currency reserves and reserves position with the International Monetary Fund (IMF). In particular, foreign currency reserves rose 1.1% month-on-month (June: +0.3%) to US$97.7 billion in July, suggesting a widening trade surplus amid slowing trade performance, while the IMF reserves position increased 9.1% month-on-month to US$1.2 billion. Meanwhile, Special Drawing Rights, gold and other reserve assets were unchanged.

In ringgit terms, the value of forex reserves rose by 1.2% month-on-month or RM4.9 billion to RM430.3 billion as at end-July, marking its highest level in 20 months. In July, the US dollar-ringgit was traded at an average of RM4.12 versus RM4.16 in the preceding month, reflecting a ringgit appreciation of 0.9% month-on-month.

This marked its second month of appreciation, primarily lifted by an increasingly dovish Fed and lower capital outflows. Similarly, other regional currencies also trended higher in July with the Philippine peso and Indonesian rupiah appreciating by 1.3% month-on-month, while the Thai baht strengthened by 1.0%.

“Despite ample foreign reserves, heightened risk from the external sector, particularly the escalation of US-China trade war continues to exert risk to the domestic financial market and economic growth,” Kenanga said.

Furthermore, the Japan-South Korea trade spat and the growth slowdown in key export markets may weigh on Malaysia’s economic growth, said Kenanga.

source https://www.thesundaily.my/business/another-interest-rate-cut-in-2019-possible-says-kenanga-XH1238077