KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
The People's Bank of China (PBOC) injected 577.7 billion yuan (US$80.9 billion or RM359.1 billion) into the financial system on Thursday through a seven-day reverse bond repurchase agreement at an unchanged rate of 1.7%. This move is part of a broader strategy to maintain liquidity in the banking system and follows recent interest rate reductions that suggest a shift in the central bank's policy framework.
Key Highlights:
Liquidity Injection: The PBOC’s cash injection through short-term bond instruments is aimed at counteracting maturing medium-term lending facility (MLF) loans, tax payments, and government bond issuance. The goal is to "keep banking system liquidity reasonably ample," according to an official statement.
Medium-Term Loan Rollover Delayed: A batch of 401 billion yuan worth of MLF loans was set to expire on Thursday, but the PBOC announced that the rollover will occur on August 26. This delay is part of the central bank’s evolving approach to monetary policy.
Shift in Policy Framework: Market analysts believe the recent sequence of interest rate cuts indicates that the PBOC is shifting its focus, with the short-term seven-day reverse repo rate now serving as the primary signal guiding markets. This represents a change from the previous reliance on the MLF as a key policy tool.
Future Arrangements: The PBOC informed primary dealers of the change in timing for the MLF operation and suggested they utilize the seven-day reverse repo to manage liquidity gaps. The central bank indicated that future MLF operations would be adjusted based on actual circumstances.
Potential RRR Cut: There remains a possibility that some or all of the MLF liquidity could be replaced by a reduction in the reserve requirement ratio (RRR) later this month or in September, according to Frances Cheung, head of FX & rates strategy at OCBC Bank.
Economic Context: Recent economic data has highlighted weak domestic demand in China, prompting calls for additional stimulus measures to support growth. The PBOC has been making adjustments to its monetary policy transmission mechanisms, with the seven-day reverse repo now functioning as the main policy rate.
The PBOC’s actions reflect ongoing efforts to manage liquidity and support the economy amid challenging conditions. The market will be closely watching the central bank's next moves, including the upcoming release of the loan prime rate (LPR) fixing next Tuesday.
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