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Equity Research
PP11072/03/2010 (023549)



Economics                                                                     ...
Overnight Policy Rate

                                                          We expect OPR to remain at 2% until next ...
Overnight Policy Rate

              Global interest rate downcycle is also shifting into low gear. Our
              Glob...
Overnight Policy Rate


  Definition of Ratings
  Maybank Investment Bank Research uses the following rating system:
    B...
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Overnight Policy Rate (OPR) Stays at 2%

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No change in OPR as widely expected. Bank Negara Malaysia
(BNM) left the Overnight Policy Rate (OPR) at a record-low of 2% after
the Monetary Policy Committee meeting yesterday (26 May ‘09), as it
did on 29 Apr ‘09. Previously, the OPR was lowered by a total of 150
bps on three occasions between Nov ’08 and Feb ’09.

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Overnight Policy Rate (OPR) Stays at 2%

  1. 1. Equity Research PP11072/03/2010 (023549) Economics 27 May 2009 Overnight Policy Rate (OPR) Stays at 2% No change in OPR as widely expected. Bank Negara Malaysia Suhaimi Ilias (BNM) left the Overnight Policy Rate (OPR) at a record-low of 2% after Suhaimi_ilias@maybank-ib.com the Monetary Policy Committee meeting yesterday (26 May ‘09), as it (603) 2297 8682 did on 29 Apr ‘09. Previously, the OPR was lowered by a total of 150 bps on three occasions between Nov ’08 and Feb ’09. Ramesh Lankanathan ramesh@maybank-ib.com BNM’s MPC Meetings in 2009 (603) 2297 8685 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) OPR maintained at 2% 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 Banks 1.0 Overnight Policy Rate: Bank Negara Malaysia 0.5 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Source: BNM Impact of Previous OPR cuts on BLR and FD Rates st nd rd 1 OPR cut 2 OPR cut 3 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
  2. 2. Overnight Policy Rate We expect OPR to remain at 2% until next year. There has been a shift in the central bank’s tone with regards to the economic conditions and outlook (see table below), suggesting that BNM is less inclined to cut the OPR further. Consequently, we maintain our recently revised view of OPR remaining at 2% (versus 1.5% previously) until next year. Tracking BNM’s Sound Bytes: “Changing Tune”… Sources… Remarks About Economic Conditions & Outlook… Sources… Remarks About Economic Conditions & Outlook… MPS, …the outlook for global growth has deteriorated Governor, OPR cuts have been “front-loaded”. Therefore, if we 24 Nov ‘08 further. Several major advanced economies are now in 27 Apr ’09 already see an improvement expected to take place in recession amid severe stress in their respective financial the second half of the year, and certainly further systems. The sharp slowdown in global demand, the improvement going into next year, we should have done significant fall in commodity prices and the substantial most of what we need to do now. Both global and local decline in equity prices have exerted greater downward economies are expected to improve by the second pressure on the growth prospects of regional economies. half of the year. The adverse global developments have already affected the Malaysian economy, as evidenced by the slowdown in export performance and lower equity prices. MPS, The international economic and financial conditions MPS, The global economic conditions deteriorated further in the 21 Jan ‘09 have deteriorated much more significantly in the 29 Apr 09 first quarter of 2009. Major advanced economies are still recent period. The major industrial economies are now experiencing a deepening economic contraction. experiencing a recession and this has significantly Regional economies have also recorded a sharp increased the risks to global growth. economic slowdown in the first quarter. While the near- term economic outlook will continue to remain weak, the The sharper deterioration of the global economy is implementation of large stimulus measures by several expected to have a greater impact on the Malaysian countries has increased the prospects for economic economy. The large decline in external demand has conditions to improve in the second half of the year. already led to a contraction in exports and a moderation in the pace of private investment activity. In addition, The (Malaysian) economy, therefore, is expected to these developments have also affected labour market record a marked contraction in the first quarter of 2009. conditions. 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. MPS, 24 The international economic and financial Governor, Right now the assessment is that there will be an Feb ‘09 environment has deteriorated sharply in the recent 9 May ’09 improvement in the second half of the year, quarter. The major advanced economies are especially in the fourth quarter. 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.... MPS, The deterioration in the world economy during the first 26 May 09 quarter was worse than expected as the global financial turmoil became more prolonged… the spillover effects have led to a severe contraction in economic activity in the advanced economies. The domestic economy continues to be adversely affected by the significant contraction in external demand... This has resulted in a marked contraction in the Malaysian economy in the first quarter of 2009. These conditions have continued into the second quarter. However, a more modest pace of decline in the latest indicators of global economic activity suggest the potential for a gradual improvement in the second half of the year. Source: BNM, Media Reports 27 May 2009 Page 2 of 4
  3. 3. Overnight Policy Rate Global interest rate downcycle is also shifting into low gear. Our Global Benchmark Interest Rate Action Diffusion Index that measures the tightening/easing bias by central banks was -17 this month vs -19 in Apr ‘09 and the recent low of -23 in Mar ‘09, as fewer central banks (CBs) cut (May ‘09: 17 CBs vs Mar ‘09: 23 CBs) and more maintained (May ‘09: 28 CBs vs Mar ‘09: 22 CBs) their interest rates. Global Benchmark Interest Rate Action Diffusion Index 20 quot;Tighteningquot; Bias 15 10 5 0 Oct-05 Apr-08 Oct-00 Apr-03 Dec-04 Aug-06 Nov-07 Sep-08 Sep-03 Dec-99 Aug-01 Nov-02 Jan-07 Jun-07 Jan-02 Jun-02 Jul-04 Jul-99 May-05 May-00 Mar-06 Feb-09 Mar-01 Feb-04 Feb-99 (5) (10) (15) quot;Easingquot; Bias (20) (25) The index refers to the difference between the numbers of central banks raising interest rates and the number of central banks cutting interest rates, excluding those that maintained their interest rates, based on the panel of 45 central banks. Positive/Negative index reading means more central banks raise/cut than cut/raise their benchmark interest rates during the month. Source: Bloomberg, Maybank-IB Weighted Average Global Benchmark Interest Rate (% p.a.) 6.4 5.9 5.4 4.9 4.4 3.9 3.4 2.9 2.4 1.9 Nov-04 Jan-99 Jun-05 Jan-06 Jul-02 May-01 May-08 Mar-00 Feb-03 Mar-07 Oct-00 Apr-04 Oct-07 Aug-99 Dec-01 Sep-03 Aug-06 Dec-08 Based 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 in May ‘09 Country (Benchmark Interest Rates) Current Rate Date Change (% p.a.) (bps) South Africa (Repo Rate) 8.50 4 May ‘09 -100 Indonesia (BI Reference Rate) 7.25 5 May ‘09 -25 Eurozone (Repo Rate) 1.00 7 May ‘09 -25 Norway (Deposit Rate) 1.50 7 May ‘09 -50 Iceland (Repo Rate) 13.00 7 May ‘09 -250 Chile (Overnight Rate) 1.25 7 May ‘09 -50 Denmark (Discount Rate) 1.40 11 May ‘09 -35 Russia (Repo Rate) 12.00 14 May ‘09 -50 Turkey (Interbank Rate) 9.75 15 May ‘09 -50 Mexico (Overnight Rate) 5.25 15 May ‘09 -75 Source: Bloomberg 27 May 2009 Page 3 of 4
  4. 4. Overnight Policy Rate Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between -5% to 10% in the next 12 months SELL Total return is expected to be below -5% in the next 12 months 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. Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. 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This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. 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 27 May 2009 Page 4 of 4

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