Reprieve comes as analysts laud continuation of BNM policies

KUCHING: Analysts expect reprieve to come for the local bourse and market sentiments as Deputy Governor of Bank Negara Malaysia (BNM), Datuk Muhammad Ibrahim has been appointed as the new governor with effective May 1, 2016 – ending months of market speculation.

Ibrahim will replace Tan Sri Zeti Akhtar Aziz who will retire at the end of April, after 16 years at helm. He will chair his first MPC meeting on May 19, 2016.

TA Securities Holdings Bhd (TA Research) cheered for the five-year appointment as it looking forward for policy continuity as well as assurances about the central bank’s independence in any policy decision making.

“We still maintain our forecast that BNM to maintain the Overnight Policy Rate at 3.25 per cent throughout the year as growth risks continue to outweigh inflation risks,” it said in a report yesterday on the matter.

“However, we do not rule out the possibility of an interest rate cut – though the probability is low – or further reduction in the statutory reserve requirement (SRR) should the economy deteriorates further.”

On the monetary policy, Hong Leong Investment Bank Bhd (HLIB Research) expects the new governor to uphold the philosophy left behind by Zeti that is to achieve medium-term sustainable growth with price stability.

“We expect no change to the Monetary Policy framework, whereby interest rates are tailored solely for domestic considerations such as growth and inflation – and not for exchange rates,” it opined in a separate note.

“We continue to expect BNM keeping the OPR steady at 3.25 per cent throughout 2016. We opine that the pace of Gross Domestic Product (GDP) slowdown does not warrant an imminent OPR cut.

“We expect BNM to wait for measures to support disposable income to take effect, such as EPF contribution rate cut, tax relief, civil servant pay rise & minimum wage hike.”

HLIB Research also expects Ibrahim to continue advocating financial stability to safeguard soundness of the financial system.

“In this regard, we expect measures on the property sector and responsible lending guidelines to be upheld during Ibrahim’s stewardship.

“On foreign exchange policy, we expect BNM to maintain existing strategy, which is leaving a free hand while intervening to smooth out volatility. We keep our ringgit year-end forecast at RM3.80 to RM4 per US dollar, but expect ringgit to experience weakening bias to above RM4 per dollar in the near term on macro concerns.

“For the banking sector, we maintain our neutral call, with earnings supported by a stable macro environment amid likelihood of an unchanged lending policy. We also maintain our neutral stance on the property sector.

“With the appointment of internal successor, we expect speculation of potential relaxation of property measures to fizzle out.”

To recap, Ibrahim was the only internal candidate from BNM in the running as compared to the other cited candidates, which includes Datuk Seri Abdul Wahid Omar, Datuk Dr Awang Adek Hussin and Tan Sri Mohd Irwan Serigar Badullah.

Ibrahim has joined BNM in 1984 and served in the areas of bank regulation and supervision, strategic planning, payment systems, insurance, offshore baking and treasury and financial markets.

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