OPR cut to 2.75pct prudent, proactive measure
Prime Minister Anwar Ibrahim said the Monetary Policy Committee's (MPC) move was based on careful assessments of current economic and inflation forecasts.
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Focus Malaysia
4 hours ago
- Focus Malaysia
Tariff uncertainty clouds rate cut gains as Malaysia eyes global trade risks
BANK Negara's latest overnight policy rate (OPR) cut was a pre-emptive one, not based on existing weakness in data points. But Kenanga thinks cues from past patterns on how sectors would trade subsequently can still serve as a good reference point. Historically, post a domestic rate cut, the 12-month return typically shows that the FBM KLCI's 12-month index returns post a rate cut were in the positive 3 out of 4 occasions since 2009. 'Among these, the financial sector has historically fared better with the exception of the May 2019 OPR cut, if we exclude the technology sector which is exposed to global supply chain factors,' said Kenanga. This is expressed in relative terms to the FBM KLCI performance. On a 12-month basis, historically, the utilities sector performed less well after the onset of a rate cut. Kenanga Economists sees that there will be no more rate cut for the rest of the year, unless GDP growth drops below 3.5% or if external conditions worsen, then BNM may have room to ease further. Nevertheless, we have flagged a mild bull-steepening bias. This terminology describes a scenario where short-term bond yields fall faster than longer-term bond yields as investors typically favour shorter-term investments, which may be brought about by expectation of additional rate cuts. Utilities tend to outperform in such a phase, and quarter three calendar year 2025 (3QCY25) would likely offer such tactical playbook. This is amid the complexity of US tariff discussions ahead of the 1 August effective implementation date, where Malaysia via its Investment, Trade, and Industry Minister has said that Malaysia is taking a measured approach to tariff negotiations, being mindful of broader implications. On the other hand, Kenanga also saw very little evidence of a rate cut being correlating well with improved stock returns in the consumer sector. Specific for consumer, we watch for the fact that higher disposable income from the OPR cut may be offset by the inflation cost-pass-through from businesses to the consumer. We observe that the 25 bps rate cut is not expected to move the needle for the sectors under coverage in terms of interest savings, as these hover less than 2% to earnings. We foresee some savings accruing to Utilities and Telco names, but expect to see opposite effect ringing true for the Oil and Gas sector as the players are generally in net cash position; some of them have employed hedging strategies, true for the likes of MISC and YINSON. Banking sector already reflecting pandemic level of loan growth expectation in ROEs and is fundamentally at a bargain level. The key for us is a strong GIL ratios for banks of <1.5%, which when coupled with the effect of a rate cut, could alleviate the need to top up on provisions. We believe investors will look to find more comfort in the area of growth. In this regard, banking analyst Clement Chua in his 10 July Sector Update estimated that all else equal, share-prices implied ROEs would commensurate with a loan growth for the system of 3.4% – which was essentially levels seen during Covid-19 (2020). This thus gives us confidence that the banks are undervalued. In the very immediate term, should bull-steepening bias materialize, historically it would be an uphill task for banks to outperform during such a stretch. Risk to the REIT sector earnings growth would be from the implementation of service tax, although a rate cut without GDP growth cut would likely be positive for the sector. As analysed in our latest REIT sector report (dated 10 July), the implied yield at the current moment at c.3.5% (MGS). This compares to 3.44% at time of writing. Our Kenanga forecast is for the year-end MGS to hover around similar levels and thus while the sector has momentum, we believe that fundamentally, the upside is more limited. Where we may be wrong is if more OPR cuts are deemed necessary – our coverage companies display a yield of 5.3% currently, and in the past decade we have seen the REIT sector trade at a level commensurating with yield of 4.6% during the pandemic. —July 14, 2025 Main image: Propertyguru
Malaysian Reserve
6 hours ago
- Malaysian Reserve
Malaysia launches green hydrogen hub, hybrid hydro-floating solar project in Terengganu
by SHAUQI WAHAB MALAYSIA has unveiled the Hybrid Hydro Floating Solar (HHFS) project and a Green Hydrogen Hub in Terengganu, marking a significant step towards the country's clean energy ambitions. Jointly spearheaded by Tenaga Nasional Bhd (TNB), Petroliam Nasional Bhd (Petronas) and Terengganu Inc, these initiatives align with the National Energy Transition Roadmap (NETR) and the Hydrogen Economy and Technology Roadmap (HETR), reinforcing Malaysia's commitment to renewable energy (RE) and a low-carbon future. The launch ceremony, held on July 12 at the Sultan Mahmud Hydro Electric Power Station in Kenyir, was officiated by Prime Minister (PM) Datuk Seri Anwar Ibrahim. Also present were Terengganu Mentri Besar (MB) Datuk Seri Ahmad Samsuri Mokhtar, Energy Transition and Water Transformation (PETRA) Deputy Minister Akmal Nasrullah Mohd Nasir and top executives from TNB, Petronas and Terengganu Inc. The Green Hydrogen Hub is a strategic collaboration between Petronas and TNB. Both entities will work together to develop green hydrogen and its derivatives, while TNB strengthens grid infrastructure to support national and regional clean energy growth. At the same time, the HHFS project is led by TNB's generation arm, TNB Genco, in collaboration with Terengganu Inc, the state's investment body. The project will use Kenyir's hydroelectric reservoir as a platform for floating solar photovoltaic panels—part of TNB's broader 2.5-gigawatt (GW) hybrid solar-hydro initiative. Anwar noted that it is part of ongoing research leading to new, clean, and green alternative energy sources that have been agreed upon at the international level. He also commended the speed and efficiency of the HHFS and green hydrogen projects in Kenyir, which have outpaced other similar initiatives in the region. Anwar also said the project has a 500GWs potential, reaching up to 2,000 or even 2,500GWs, poised for major contribution to the nation and the region. 'It proves Malaysia's capability to lead in green energy — advanced, strong and forward-looking,' he said. Akmal Nasrullah commended Anwar's efforts of highlighting the energy transition agenda at the international stage. 'The PM was also the catalyst for the splendid collaboration between TNB and Petronas, thanks to his recommendation and vision,' he said. Meanwhile, TNB president and CEO Datuk Megat Jalaluddin Megat Hassan shared that the Kenyir HHFS project exemplifies how TNB is leveraging its existing assets to maximise renewable output. The Terengganu green hydrogen hub will be developed within the Kenyir-Kertih corridor, combining TNB's renewable generation assets and Petronas' industrial infrastructure. It will support a 24/7 RE generation from the Kenyir HHFS project while maintaining green hydrogen production, powered by electrolysers. Besides, it will also contribute to downstream products such as green methanol and green ammonia, followed by carbon capture, utilisation and storage (CCUS) infrastructure in Kertih. This integrated end-to-end ecosystem will be the first of its kind and scale in Malaysia and aims to enable cross-sectoral decarbonisation.
Malaysian Reserve
6 hours ago
- Malaysian Reserve
Interest rate cut needs institutional follow through to be adequate
The OPR cut is important, but banks and govt machineries at the federal, state and local level need to make a paradigm shift to promote expansionary sentiments LAST week, Bank Negara Malaysia (BNM) duly delivered what was expected from the central bank, lowering the banking system's interest rate to promote spending and investment — in theory, at least. The benchmark Overnight Policy Rate (OPR) was cut down for the first time since July 2020, by 25 basis points (bps) to 1.75%, heralding an incoming economic slowdown and trade headwinds. With the global economic growth expected to moderate in the second half of the year (2H25) against the backdrop of trade tensions and geopolitical risk, Malaysia cannot afford to allow domestic demand to be weighed down by external factors. The Malaysian economic growth is already projected to slow down to around 4% this year, from 5.5% in 2024 as US President Donald Trump's tariff tantrum continues, dampening export momentum. Nonetheless, economists are confident that domestic demand, driven by labour market improvements and tourism recovery, will remain resilient. Upward sentiments in the labour market are underlined by the unemployment rate holding steady at a decade-low of 3% in May 2025, supported by the stable growth pace of the labour force (0.2% month-to-month) and decline in loss of employment (-14%). The tourism industry, in the meantime, is estimated to record up to 7.8% growth, or 26.9 million tourist arrivals this year, marking a full recovery to pre-Covid-19 levels in 2019. The World Travel & Tourism Council projects that the tourism and travel industry will contribute 11.3% to the national GDP, or RM332 billion, in 2025, significantly higher than last year's RM218 billion. However, economists have cautioned that policy interventions by the central bank would be useless if the banking system and the whole government machinery — either at federal, state or local govt level — fail to shift-up and follow through. The lowering of OPR will only affect consumers' pockets positively if banks decide to channel the savings to real loan rates. An economist also cautioned that despite OPR being cut down to 2.75% the real interest rate stood at 1.55%, which is still high by historical standards. The long-term average real interest rate in Malaysia is 0.88%, which means borrowers are still paying an expensive cost for loans in real terms, he argued. Monetary policy needs to be accommodative, and business policy needs to be entrepreneur and people-friendly for consumer confidence to flourish and spending to grow. Unbeknownst to the public, local governments are especially influential in determining spending patterns among their constituents, as they have wide-ranging, self-interpreted local laws at their disposal, which, in some occasions, are ridiculously baffling and beyond common sense. Take, for instance, one particular state city where its enforcement division is making restrictive interpretations of the law governing food kiosks, which, in effect, sabotage genuine entrepreneurs and discourage customers from frequenting the joint. This kiosk, selling toasts and simple breakfast delicacies at a local lake park, was a hit and went viral even before the word 'viral' was invented. It was, however, recently slapped with a weird ruling by the local authority, banning it from placing tables and chairs for its customers, even though the area in front of the kiosk is vacant and clearly designed to accommodate dining chairs and tables. Weird, to say the least. But frankly speaking, it clearly looks like spiteful sabotage by the very people who are supposed to promote and support entrepreneurship. Now, with the aligning of powers between the state and federal, the government might want to consider covering these local councils as part of the economic support system. It is developmental economy on a longer horizon, which should be a priority for the nation. Asuki Abas is the editor of The Malaysian Reserve, and a former entrepreneur disillusioned with bureaucracy. This article first appeared in The Malaysian Reserve weekly print edition
