Malaysia’s economic indicators have weakened significantly recently. In Sep, industrial production rose just 1.7%, year-on-year; exports plunged by 6.8%, year-on-year, the sharpest in 3 years; bank lending gained just 3.8%, year-on-year, the slowest in more than a decade. In light of the worsening economic conditions, Bank Negara last week lowered the statutory reserve requirement (SRR) by 50 basis points to 3.0%. This is the first cut in SRR in nearly 4 years.
The purpose of the reduction in SRR is to allow banks to lend more to economic agents; thereby stimulating economic growth. However, i Capital does not expect the reduction in SRR this time round to have much impact on the economy because the demand for money is weak. In the first 9 months of 2019, application for loans contracted by 2.1%, year-on-year. This is because consumer and business sentiment have weakened substantially.
Although a slowing global economy played a part in the weakening of sentiment, many domestic factors have contributed to the worsening sentiment. Among them are lack of a clear economic policy, increasing discord among the component parties of the ruling coalition, and politicians inciting racial hatred in the country and of course, still no clear successor to the ageing prime minister, who intent to stay in power forever.
The purpose of the reduction in SRR is to allow banks to lend more to economic agents; thereby stimulating economic growth. However, i Capital does not expect the reduction in SRR this time round to have much impact on the economy because the demand for money is weak. In the first 9 months of 2019, application for loans contracted by 2.1%, year-on-year. This is because consumer and business sentiment have weakened substantially.
Although a slowing global economy played a part in the weakening of sentiment, many domestic factors have contributed to the worsening sentiment. Among them are lack of a clear economic policy, increasing discord among the component parties of the ruling coalition, and politicians inciting racial hatred in the country and of course, still no clear successor to the ageing prime minister, who intent to stay in power forever.
