06 March 2010

How BNM OPR hiking affecting market?

4th March 2010, Bank Negara Malaysia (BNM) raised its overnight policy rate (OPR) by 25 basis points to 2.25%, signaling a reversed trend of interest rate environment in Malaysia. According to BNM, such measure was needed to normalize interest rate with improvement in economic conditions. I personally agree too, by rejecting the using the words of “monetary tightening”.

However, this is only just started; a gradual approach by BNM to raised OPR is expected. To recap, BNM had slashed OPR by 150 basis points to 2% starting 2008. In other words, BNM has a lot more room in reaching the pre-crisis level.

Below are some resulting effects:
1. Banks’ base lending rate will rise accordingly from 5.55% now.
2. Banks’ fixed deposit rate will rise accordingly from 2%-2.5% now too.
3. Ringgit will strengthen further against major currencies, like USD and Pounds.

How about Share Market?
A lot of people anticipate that share market will corrects when central banks hike interest rate. However, this time is not the same here, with KLCI inching 1.22% to 1299.78 points. Meanwhile, it also breaks the psychological 1,300 level since 19th Jan this year.

By analyzing KLCI, 28% was made up of banking counters, with Maybank rose 5.56%, RHBCap (+3.4%) and CIMB + (1.0%). Banking stocks were mostly up, due to improved profit margin given an improved interest rate environment. Besides, foreign funds also pouring into Malaysia in view of stronger ringgit and low sovereign default risk.

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