KUALA LUMPUR, Nov 5 (Bernama) -- Bursa Malaysia closed higher, buoyed by Bank Negara Malaysia’s (BNM) decision to maintain the Overnight Policy Rate (OPR) at 2.75 per cent, alongside positive cues from Wall Street. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 19.30 points, or 1.19 per cent, to 1,635.86 from Wednesday’s close of 1,616.56. The benchmark index opened 6.72 points higher at 1,623.28, and fluctuated between an intraday high of 1,642.44 and a low of 1,622.62 during the trading session. However, market breadth was negative, with losers outnumbering gainers 723 to 497, while 466 counters were unchanged, 1,075 untraded and 10 suspended. Turnover rose to 3.74 billion units valued at RM3.61 billion compared with yesterday’s 2.81 billion units valued at RM2.57 billion.
The European Central Bank (ECB) is poised to cut interest rates again on Thursday, despite inflation risks persisting amid a faltering eurozone economy. Investors will be closely scrutinizing the ECB's statements for any signs of further easing.
The ECB lowered its deposit rate to 3.75% in June, and several policymakers have already signaled support for another cut. The debate is expected to center on how swiftly borrowing costs should be reduced in future meetings.
ECB President Christine Lagarde is likely to maintain the bank's recent stance that decisions are made on a meeting-by-meeting basis, driven by incoming data. However, she may also indicate that all meetings remain “live,” leaving the door open for a potential cut in October, while some conservative policymakers, or "hawks," argue for a slower pace of easing due to inflation across the 20-country eurozone remaining above the ECB's 2% target.
"All eyes will be on any messages regarding the future path of rate cuts, particularly the chances of another 25 basis point move being announced as early as October," said Santander economist Antonio Villarroya.
More dovish policymakers, particularly from southern eurozone countries, are likely to highlight rising recession risks and argue that, with inflation nearing the target at 2.2%, current ECB rates are unnecessarily restrictive on growth. In contrast, inflation-wary hawks, who still hold a majority, contend that the labor market remains overheated and that underlying price pressures—evident in persistent services costs—pose a risk of renewed inflation.
New Economic Forecasts
New economic forecasts from the ECB are expected to show slightly lower growth this year, with inflation broadly in line with June's projections and anticipated to return to 2% sustainably by the second half of next year.
While few policymakers are likely to oppose further easing, the key disagreement is over the speed at which the ECB should move. "The hawks haven’t taken flight," said Davide Oneglia of TS Lombard. "Their new goal is to manage cut expectations and prepare for growing frictions within the Governing Council as the policy rate declines."
Hawkish members have made it clear they support quarterly rate cuts, as key growth and wage indicators—which inform the ECB’s projections—are compiled every three months.
Investors are similarly divided, with a further cut by December already fully priced into financial markets, but the probability of an interim move in October fluctuating between 40% and 50%.
Lagarde's main challenge at her 1245 GMT news conference will be to keep all options open without raising expectations for an October cut. "We expect the ECB to adopt a stance similar to the one in June: it will make clear that the direction on rates remains downward, but it will not give a clear signal on the size and timing of the next move," said JP Morgan economist Greg Fuzesi. "However, we think the implicit message will be consistent with a move in December rather than in October."
Technical Rate Cut
With Thursday's anticipated move, the ECB's deposit rate will decrease by 25 basis points to 3.5%. Meanwhile, the refinancing rate is expected to drop by a much larger 60 basis points due to a long-planned technical adjustment.
For years, the gap between these two rates has been set at 50 basis points. In March, the ECB announced plans to narrow this corridor to 15 basis points starting in September, which could eventually revive interbank lending—a development that is still years away.
Currently, banks are holding onto 3 trillion euros of excess liquidity, depositing this amount overnight with the central bank, effectively making the deposit rate the ECB’s main policy tool. Over time, as this liquidity diminishes, banks will need to borrow again from the ECB at the refinancing rate, traditionally the central bank’s benchmark interest rate.
When this shift occurs, the main rate will regain its prominence, while the narrower rate corridor will enable the ECB to better manage market rates.
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