Bank Negara's SRR cut gives room to assess US tariff fallout, says Moody's Analytics
KUALA LUMPUR, May 13 — The 100-basis point cut in the Statutory Reserve Requirement (SRR) ratio by Bank Negara Malaysia (BNM) last Thursday is intended to give the Monetary Policy Committee some breathing room to assess the impact of the United States (US)-led tariff shock on exports, said Moody's Analytics.
Moody's Analytics economist Sunny Nguyen said the move would also give the central bank time to determine whether the recent subsidy‐driven spike in inflation is a one-off and, crucially, to gauge the US Federal Reserve's next course of action.
'A lower SRR allows banks to lend more, boosting economic growth by increasing credit availability. Liquidity injections are the policy equivalent of loosening your tie in case you decide to change shirts,' she said in a research note today.
On the overnight policy rate (OPR), Nguyen said BNM is likely to keep it at three per cent through August.
She explained that based on past patterns, BNM typically begins easing by cutting the SRR first, followed by interest rate cuts once data confirms a slowdown and inflation concerns ease.
'This strategy eases pressure on the ringgit by giving banks immediate relief, while also reassuring foreign investors that the Malaysia-US yield gap won't narrow too quickly,' she added.
Nguyen said this situation points to a possible 25‐basis point rate cut to 2.75 per cent in September, depending on the headline consumer price index, which is expected to rise as subsidies on RON95 fuel are gradually withdrawn.
However, inflation must remain convincingly below three per cent year-on-year as the US Federal Reserve (Fed) resumes its easing cycle — something futures markets are tentatively signalling could begin in September.
'If the Fed moves first, pressure will come off the ringgit, giving BNM room to trim without fear of a sharp impact on the local currency,' she said.
She added that a lower Fed funds rate would also affect Malaysian growth, and that cheaper global financing would help cushion the impact of tariffs on Malaysia's export‐heavy electronics sector, while easing the burden of pandemic-era corporate debt rollovers.
'For the broader outlook, we expect both central banks to cut rates in September. Real gross domestic product growth should ease to about four per cent from five per cent in 2024 and is projected at 3.9 per cent in 2026.
'Domestic demand will remain the economy's main engine, drawing power from civil service pay rises and the construction of the East Coast Rail Link,' she concluded. — Bernama
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