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Equity Research PP11072/ 03/2010 (023549) Economics 30 April 2009 Overnight Policy Rate (OPR) Nowhere to go OPR unchanged. Bank Negara Malaysia (BNM) maintained the Suhaimi Ilias Overnight Policy Rate (OPR) at a record-low of 2% after the Monetary Suhaimi_ilias@maybank-ib.com Policy Committee (MPC) meeting yesterday (29 Apr ‘09). Earlier, the (603) 2297 8682 OPR was cut three times by total of 150bps between Nov ’08 and Feb ’09. The latest move was not that surprising after the “not so subtle hint” contained within recent comments by the central bank’s Governor. Wong Chew Hann email@example.com Schedule of BNM’s MPC Meetings in 2009 (603) 2297 8686 Dates Outcome 21 Jan ’09 (Wednesday) 75bps reduction in OPR to 2.5% 24 Feb ’09 (Tuesday) 50bps reduction in OPR to 2% 29 Apr ’09 (Wednesday) OPR maintained at 2% 26 May ’09 (Tuesday) To be announced (TBA) 29 Jul ’09 (Wednesday) TBA 25 Aug ’09 (Tuesday) TBA 28 Oct ’09 (Wednesday) TBA 24 Nov ’09 (Tuesday) TBA Source: BNM Malaysia: OPR (% p.a.) & SRR (%) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 Statutory Reserve Requirement: Commercial Banks1.0 Overnight Policy Rate: Bank Negara Malaysia0.5 44555666777888990004005006000700080r-l-t--0r-0l-t--0r-0l-t--0r-l-t--0r-l-t--0r-pcncncnpcnpcnpAJuOJaApJuOJaApJuOJaAJuOJaAJuOJaASource: BNM Impact of Previous OPR cuts on BLR and FD Rate 1st OPR cut 2nd OPR cut 3rd OPR cut (24 Nov ’08) (21 Jan ’09) (24 Feb ’09) OPR 3.25% (-25bps) 2.50% (-75bps) 2.00% (-50bps) SRR 3.50% (-50bps) 2.00% (-150bps) 1.00% (-100bps) BLR (average) 6.48% @ end-Dec 5.89% @ end-Feb 5.53% @ 15 Apr ’09 ‘08 (-24bps) ’09 (-59bps) (-36bps) FD rate: 1-month 3.00% (-10bps) 2.50% (-50bps) 2.00% (-50bps) 3-month 3.50% (-20bps) 3.00% (-50bps) 2.50% (-50bps) Source: Maybank-IB Overnight Policy Rate We now think there will be no more OPR cuts. There is a noticeable shift in the tone of BNM and the Governor. Earlier Monetary Policy Statements (MPS) were “bearish”. In contrast, remarks made by the Governor just before yesterday and the latest MPS were relatively “upbeat”, signaling the need for further OPR rate cuts is significantly mitigated. Consequently, we revise up our OPR outlook for end-2009 and end-2010 to 2% from 1.5% previously. Central Bank’s Sound Bites… Source Remarks about Economic Conditions & Outlook MPS, 24 Nov ‘08 …the outlook for global growth has deteriorated further. Several major advanced economies are now in recession amid severe stress in their respective financial systems. The sharp slowdown in global demand, the significant fall in commodity prices and the substantial decline in equity prices have exerted greater downward pressure on the growth prospects of regional economies. The adverse global developments have already affected the Malaysian economy, as evidenced by the slowdown in export performance and lower equity prices. While domestic demand remains resilient, there are indications of slower private sector activity amid some softening in the labour market conditions and a more challenging business environment. MPS, 21 Jan ‘09 The international economic and financial conditions have deteriorated much more significantly in the recent period. The major industrial economies are now experiencing a recession and this has significantly increased the risks to global growth. The sharper deterioration of the global economy is expected to have a greater impact on the Malaysian economy. The large decline in external demand has already led to a contraction in exports and a moderation in the pace of private investment activity. In addition, these developments have also affected labour market conditions. MPS, 24 Feb ‘09 The international economic and financial environment has deteriorated sharply in the recent quarter. The major advanced economies are experiencing a deepening economic contraction, while the regional economies are experiencing a rapid slowdown. The impact of the rapid decline in global demand on trade, production and investment activities in the Asian region has intensified…The downside risks to the global economic outlook have increased significantly. The Malaysian economy has been adversely impacted by these global developments... The domestic economic conditions are expected to continue to remain challenging in the coming quarters with the continued deterioration in the global economy… this has raised the risk of an economic contraction in 2009.... Governor, 27 Apr ’09 OPR cuts have been “front-loaded”. Therefore, if we already see an improvement expected to take place in the second half of the year, and certainly further improvement going into next year, we should have done most of what we need to do now. Both global and local economies are expected to improve by the second half of the year. MPS, 29 Apr 2009 The global economic conditions deteriorated further in the first quarter of 2009. Major advanced economies are still experiencing a deepening economic contraction. Regional economies have also recorded a sharp economic slowdown in the first quarter. While the near-term economic outlook will continue to remain weak, the implementation of large stimulus measures by several countries has increased the prospects for economic conditions to improve in the second half of the year. The (Malaysian) economy, therefore, is expected to record a marked contraction in the first quarter of 2009. These conditions are expected to prevail until the second quarter of the year. Nevertheless, some signs of moderation in the pace of decline in economic activity have emerged. The current assessment is that the domestic economy is expected to improve in the second half of 2009, supported by stabilisation in global economic conditions and the larger impetus from the implementation of the fiscal stimulus measures. Going forward, the implementation of the fiscal stimulus measures, and the accommodative monetary environment following the previous reductions in the OPR, will provide support to domestic economic activity. Source: BNM, Media Reports 30 April 2009 Page 2 of 4 Overnight Policy Rate BNM’s policy focus now will be on credit access and financial sector liberalization. Having dealt with the cost of credit part, we expect BNM to focus on ensuring access to credit with recent measures such as the RM5b Working Capital Guarantee Scheme (WCGS) and RM5b Industry Restructuring Loan Guarantee Fund Scheme (IRLGFS) that was part of the RM60b 2nd economic stimulus package. BNM will also be overseeing the execution of the recently announced financial services liberalization over the next two years. Globally, interest rate cuts still taking place up to this month. Our measure of the weighted average global benchmark interest rate has fallen steadily since Oct ’08 and is now at its lowest of 2.244% since the database began in 1999 amid further interest rate cuts by major and regional central banks. Weighted Average Global Benchmark Interest Rate (% p.a.) 6.56.05.55.04.54.03.53.02.52.0990011233445667788-9-9-0-0-0-0-0-0-0-0-0-0ngr-0t-0ycl-0bpr-0vnngr-0t-0ycJaJuAuMaOcMaDeFeSeApNoJuJaAuMaOcMaDeBased on the average of 45 central banks’ benchmark interest rates, weighted by the respective country’s GDP Source: Bloomberg, Maybank-IB Interest Rate Cuts by Key Central Banks, Apr ‘09 Country (Benchmark Interest Rates) Current Rate Date Change (% p.a.) (bps) Eurozone (Repo Rate) 1.25 2 Apr ‘09 -25 Denmark (Lending Rate) 2.00 3 Apr ‘09 -25 Indonesia (Reference Rate) 7.50 3 Apr ‘09 -25 Australia (Cash Target Rate) 3.00 7 Apr ‘09 -25 Iceland (Repo Rate) 15.50 8 Apr ‘09 -150 Thailand (Repo Rate) 1.25 8 Apr ‘09 -25 Chile (Overnight Rate) 1.75 10 Apr ‘09 -50 Philippines (Overnight Rate) 4.50 16 Apr ‘09 -25 Turkey (Interbank Rate) 9.75 16 Apr ‘09 -75 Mexico (Overnight Rate) 6.00 17 Apr ‘09 -75 Pakistan (Discount Rate) 14.00 20 Apr ‘09 -100 Canada (Overnight Rate) 0.25 21 Apr ‘09 -25 Sweden (Repo Rate) 0.50 21 Apr ‘09 -50 India (Reverse Repo Rate) 3.25 21 Apr ‘09 -25 India (Repo Rate) 4.75 21 Apr ‘09 -25 Brazil (Lending Rate) 10.25 29 Apr ‘09 -100 New Zealand (Reference Rate) 2.50 30 Apr ‘09 -50 Source: Bloomberg 30 April 2009 Page 3 of 4 Overnight Policy Rate Definition of Ratings Maybank Investment Bank Research uses the following rating system: STRONG BUY Total return is expected to exceed 20% in the next 12 months; high conviction call BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between above 0% to 10% in the next 12 months FULLY VALUED Total return is expected to be between -10% and 0% in the next 12 months SELL Total return is expected to be below -10% in the next 12 months TRADING BUY Total return is expected to be between 10-20% in the next 6 months arising from positive newsflow e.g. mergers and acquisition, corporate restructuri ng, and potential of obtaining new projects. However, the upside may or may not be sustainable Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. 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Published / Printed by Maybank Investment Bank Berhad (15938-H) (Formerly known as Aseambankers Malaysia Berhad) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, MaybanLife Tower, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 30 April 2009 Page 4 of 4