Bank Negara holds OPR at 3pc, flags resilient growth outlook
BNM said the latest indicators point towards continued global growth and trade, supported by domestic demand and front-loading activities.
It also said the global growth outlook would remain supported by positive labour market conditions, less restrictive monetary policy and fiscal stimulus. — Bernama
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New Straits Times
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- New Straits Times
Bank Negara may need to do more as liquidity strains persist
KUALA LUMPUR: A month after Bank Negara Malaysia reduced the amount of reserves that banks must set aside, early signs show the move has helped ease liquidity pressures in the financial system, but analysts say it may not be enough. The 100 basis-point reduction in the Statutory Reserve Requirement (SRR) on May 16 injected RM19 billion into the banking system. CIMB Securities said the additional cash helped bring down short-term borrowing costs, but deeper funding stress remains. "These actions had a measurable impact in easing funding conditions, as seen in the reduction in interbank rates," CIMB Securities senior economist Azri Azhar and head of research Michelle Chia said in a note. They were referring to the Kuala Lumpur Interbank Offered Rate (KLIBOR), the interest rate banks charge each other for short-term loans. A commonly watched measure, the spread between the three-month KLIBOR and the Overnight Policy Rate (OPR), has narrowed from 65 basis points (bps) to 49 bps since the SRR cut. However, that spread is still wider than the pre-pandemic norm of 35-45 bps, suggesting that borrowing costs in the system remain higher than ideal. In short, banks still face some difficulty accessing affordable short-term funds, which can limit their ability to lend. Credit growing faster than deposits One of the key reasons is that loan growth continues to outpace deposit growth. For the past 16 consecutive months, banks have been lending more than they have been able to collect from depositors. CIMB Securities said this has pushed the loan-to-deposit ratio to 87.9 per cent, close to its upper comfort limit. "Liquidity has improved, but it has not recovered to the more comfortable levels above RM60 billion, which support a more constructive loan-deposit ratio," the firm said. It added that the situation is further compounded by how Malaysians, both consumers and businesses, are choosing to hold their money. In May, fixed deposits, traditionally a stable source of bank funding, shrank by 1.2 per cent year-on-year. At the same time, foreign currency deposits surged by 16.7 per cent, as more Malaysians shifted their savings into US dollars or other currencies in search of better returns or to hedge against ringgit volatility. This trend reduces the availability of ringgit funding in the local banking system, making banks more reliant on short-term interbank markets to meet demand. External risks and policy room CIMB Securities said these funding pressures are occurring against a backdrop of uncertain global conditions, including the potential economic fallout from US President Donald Trump's tariff regime. It noted that Malaysia's economy grew 4.4 per cent in the first quarter of 2025, the slowest pace in a year, partly due to a front-loaded export push ahead of the anticipated tariff changes. More concerning, the firm said, is that money supply growth continues to lag behind nominal gross domestic product, signalling that monetary conditions remain tighter than ideal for an economy facing mounting external risks. With the SRR now at one per cent and the OPR unchanged, CIMB Securities said there is still policy space for further action, either by cutting interest rates or by making more liquidity available through additional SRR tweaks. It noted that funding pressures typically intensify toward year-end, with the KLIBOR–OPR spread widening sharply in December, reaching as high as 93 bps in 2022, 77 bps in 2023, and 73 bps in 2024. A preemptive move now, the firm added, could help Bank Negara avoid another seasonal crunch and keep credit flowing smoothly through the second half of 2025.
Free Malaysia Today
an hour ago
- Free Malaysia Today
TNB's share price falls after Federal Court decision on LHDN case
The dispute arose when the Inland Revenue Board disallowed Tenaga Nasional Bhd's claim that the generation, distribution and transmission of electricity was not manufacturing of electricity. PETALING JAYA : Tenaga Nasional Bhd's shares plunged a day after the Federal Court overturned a ruling in the largest corporate tax dispute in the country's history, resulting in losses of over RM3 billion in its market capitalisation. TNB's shares fell as much as 74 sen, or over 5%, to its lowest level since June 3, The Edge reported. The counter closed at RM14.02. Yesterday, the apex court overturned a Court of Appeal ruling that found the national utility company to be in the business of manufacturing electricity. The Federal Court said TNB should actually have been considered a utility company under Schedule 7B of the Income Tax Act 1967 (ITA). The dispute arose when the Inland Revenue Board (LHDN) disallowed TNB's claim under Schedule 7A of the ITA on the basis that the generation, distribution and transmission of electricity was not manufacturing of electricity. TNB had also argued that it was only a service provider. In 2022, the High Court allowed TNB's judicial review application to set aside LHDN's RM1.8 billion tax assessment for the year 2018. Two years later, the Court of Appeal upheld the High Court's ruling. TNB has already paid the sum. Today, analysts told The Edge about the possibility of hefty provisions and potential implications for the company's other outstanding court cases. The Edge quoted CIMB Securities as expressing concerns that the case might set a legal precedent for TNB's other pending court cases for notices of additional assessment from LHDN.
Free Malaysia Today
an hour ago
- Free Malaysia Today
GST only better for revenue, economist says on tax debate
Prime Minister Anwar Ibrahim said last month that Putrajaya would only consider reintroducing the GST once the economy improves and the minimum wage reaches RM4,000 or more. PETALING JAYA : Economists say the debate on the goods and services tax (GST) versus the sales and service tax (SST) is no longer relevant given the current economic climate, describing the issue as 'exhausted' and 'outdated'. Economist Geoffrey Williams said the GST only surpasses the SST in terms of revenue collection due to its broader scope of taxable goods and services. He said the GST naturally generates more revenue than the SST because more goods and services are taxed, and a larger proportion of the population – including lower-income groups – ends up paying it. 'The SST can be a fairer system depending on the tax coverage and design, as essential goods and selected services can be exempted,' he told FMT. Geoffrey Williams. Williams also said it was unreasonable to take more money from consumers who were already struggling with the cost of living, especially as incomes remained low. He said it would be better to wait until average and median incomes increase before imposing a broad-based consumption tax that would disproportionately affect low-income earners. Williams added that the rise of e-commerce, digital payments, and e-invoicing presented opportunities to introduce new forms of taxation, such as an electronic payments tax, that do not distort consumer spending and can be collected efficiently without placing additional administrative burdens on businesses. 'It's time to move beyond the narrow debate on taxing consumption and explore other options,' he said. Meanwhile, economist Barjoyai Bardai from Malaysia University of Science and Technology said the SST system could be refined to become more effective and less burdensome for the government. Barjoyai Bardai. 'We don't need to switch to the GST to achieve this,' he said. He said that despite the global popularity of the GST or value-added tax systems, some major economies such as the US do not implement them. 'They still use a sales tax, just like Malaysia,' he said. He urged the government to improve the SST framework by addressing its 'single-stage tax' nature and introducing a credit mechanism to eliminate the cascading effect of tax-on-tax. 'If that can be done, we can lower the prices of goods as they would no longer be taxed multiple times along the supply chain,' he said. Finance minister II Amir Hamzah Azizan said yesterday that the government had ruled out reintroducing the GST for now, calling it 'impractical' given the current economic conditions. Speaking as a guest on the Keluar Sekejap podcast, Amir said the government did not dispute the merits of the GST system but believed that it was 'not suitable for now'. Prime Minister Anwar Ibrahim said last month that Putrajaya would only consider reintroducing the GST once the economy improves and the minimum wage reaches RM4,000 or more.
