BNM decided to reduce OPR by 50 basis points effective from 1 March 2009.
I then asked him ,"What about SRR?" He paused and then said,"1% cut."
As one should be aware, Overnight Policy Rate ("OPR") is an overnight interest rate, set by BNM, used for monetary policy direction. It is the target rate for the day-to-day liquidity operations of the BNM. So when BNM wants to lend or borrow for day-to-day needs, it will be transacting at a range of +/- 25 basis points or 0.25%. In effect, it is also a tool where BNM is telling the banks what is the risk free rate. By lowering it, they are indirectly telling the banks to lower their cost of lending.
Now, the January cut was largely expected but the quantum was kind of a shocker. But the February cut and the quantum involved is not something which I would expect.
The Malaysian economy has been adversely impacted by these global developments. Exports and industrial production have declined steeply, while private investment activities have slowed down in recent months as businesses scaled back their spending. Consumer sentiment has also been affected by the weakening conditions in the labour market. The domestic economic conditions are expected to continue to remain challenging in the coming quarters with the continued deterioration in the global economy.
Yup, that press statement released today from BNM confirms my worries alright. There is something the Government is not telling us, the rakyat. It is something we all knew it all along despite the reassurance that all is well until not too long ago, the DPM decides to tell us, actually, all is not well. And the latest move by BNM is merely an indication of the kind of magnitude they are expecting.
Anyway, to soften the blow from the signal they sent, BNM wrote this following the bleak prognosis of the coming economic downturn.
While this has raised the risk of an economic contraction in 2009, the prospects remain intact for an economic recovery once global conditions stabilise given that the economy is not overleveraged, the financial system remains sound, and the external position is healthy.
With inflation on a moderating trend, the task of macroeconomic policy is to support domestic demand until conditions in the global economy show signs of normalisation. Further measures will be introduced by the Bank to ensure continuous access to credit as well as to minimise the impact of the economic downturn on specific affected groups.
Basically, BNM wants us to do things per normal before the financial crisis. To keep spending and investing and boost the local economy.
Sigh... there seems to be no end in sight for the dark days ahead. I am definitely putting off some planned expenditures after what BNM announced.
But you know what is funny, I am still working till late nights. I guess like what someone once told me about being thankful; your bonus this year is you are still working.