Yesterday, Bank Negara Malaysia (BNM) decided to maintain the overnight policy rate (OPR) at 3.00%. While there is evidence of weak global trade affecting domestic demand, the latest Malaysian economic indicator is still in line with expectation, suggesting moderate expansion of economic activity for 3Q19 (BNM’s monetary policy statement, 5 Nov). Macquarie Equities Research (MQ Research) views that the no-cut decision is a positive catalyst for banks’ earnings, and still maintains CIMB as its top pick while preferring Maybank over Public.

Event

• The monetary policy committee of Malaysia’s central bank, Bank Negara Malaysia, yesterday met for the sixth and final time in 2019 and decided to hold the OPR unchanged at 3.00%. The last -25bps rate cut was in May 2019.

Impact

• Positive for banks: As anticipated in MQ Research’s previous report, BNM surprised vs Street expectations and held rates unchanged in the November meeting. This presents an earnings upside of +2.8%/+2.5%/+1.4% upside to MQ Research’s FY20E NP forecasts for Public/Maybank/CIMB.

• More wait-and-see: While downside risks to growth remain, Macquarie’s Desk Strategy FX and Macro analyst, Trang Thuy Le, thinks the risk of rate cuts in 2020 have diminished given Malaysia’s economic resilience. As it stands, Malaysia has been among the least dovish in ASEAN. She expects BNM will take a wait-and-see approach; barring external shocks there is little impetus for a rate cut. Trang also notes that smooth progression of US-China trade talks will be a tailwind for sentiment over the next three to six months; tempering risk of external shocks.

Outlook

The no-cut is a positive catalyst for banks’ earnings as well as vs depressed expectations. Reiterate CIMB (Outperform) as MQ Research’s top pick for the sector and prefer Maybank (Outperform) to Public (Neutral); corporate over consumer banks.

Source: Macquarie Research - 6 Nov 2019