● No change. The Federal Open Market Committee (FOMC) expectedly kept interest rates unchanged at a target range of 0.0%-0.25% as COVID-19 continues to pose considerable risks. The vote was unanimous.

● Clearer forward guidance. The Committee predicted they would keep interest rates close to zero at least till 2022, as the US central bank indicated it would take years to bring joblessness back down to the pre-coronavirus pandemic level. In a set of new economic projections since last December, most of the 17 members of the FOMC appeared to support keeping the federal funds rate at the zero bound through the forecast horizon of 2022. In “dot plots” mapping out each members’ forecasts, only two policymakers saw a case for hiking rates in 2022 (one of which saw four rate hikes by the end of 2022).

● Maintains policy clarity. In a policy statement that was mostly unchanged compared with April, the Committee said it was “committed to using its full range of tools to support the US economy in this challenging time” and would keep interest rates close to zero until it was “confident that the economy has weathered recent events”. And reiterated that it will maintain federal funds rate target range at the current level until it's "confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." The central bank will continue to buy Treasurys and mortgage-backed securities "at least at the current pace to sustain smooth market functioning”. The Fed is currently buying approximately USD20.0b of Treasuries a week, or an average of USD4.0b a day.

● Fed Chair Jerome Powell: The Fed is "strongly committed" to use its full range of tools and do "whatever we can and for as long as it takes" to limit lasting damage to the economy he stressed during the ensuing virtual press conference. He added: “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.” The severity of the downturn will partly depend on policy action taken at all levels of government, he added. He emphasises the importance to preserving the flow of credit and notes that the Fed's lending programs "can increase the willingness of private lenders to extend credit."

● BNM has room for further easing. The 50 basis points (bps) cut of the overnight policy rate (OPR) in the last Monetary Policy Committee (MPC) meeting and the accompanying dovish statement seemed to signal that Bank Negara Malaysia (BNM) has space for more rate cuts to further support the economy post movement restriction order and to cushion any impact of the escalating Sino-US tension. Hence, the probability for BNM to cut the OPR by at least another 25 bps to 1.75% at its next Monetary Policy Committee meeting on 6-7 July is relatively high to support economic growth as well to reinforce the recently announced fiscal stimulus.

Source: Kenanga Research - 11 Jun 2020