Malaysia cuts reserve requirement to ensure liquidity

KUALA LUMPUR - Bank Negara Malaysia (BNM) has held rates steady but will cut the statutory reserve requirement ratio to 3.5% from 4%, effective February 1. ANZ Bank says the move vindicates its view that BNM will eventually have to act via reserve requirements (in the absence of a policy cut) to alleviate tight liquidity in Malaysia’s banking system amid slower deposit growth.

“There is little leeway for the central bank to act via policy rates as growth risks constrain space for a hike while at the same time currency weakness limits space for a cut,” ANZ says.

“The upcoming budget revision on January 28 is the next key risk event. It has been a ‘crude’ awakening for Malaysia. The continued fall in oil prices will weigh on Malaysia’s fiscal balances and currency.” www.live.anz.com (ATI).