Question

As its meeting on 07 May 2019, Bank Negara Malaysia has announced to reduce the Overnight Policy Rate (OPR) from 3.25% to 3.00%. If a bank management was quite certain that interest rates were going to rise within the next six months, how should the bank management adjust the bank’s six-month repricing gap to take advantage of this anticipated rise? In addition, what if the management believed rates would fall in the next six months?

Answer 1

Basis the information given in the above Question,

The reduction of Overnight Policy Rate by the Bank Negara Malaysia Denotes that - it has taken accomdative stance to ensure there is sufficient liquidty in the economy and to boost the economic growth and revive the buiness of a large and medium companies and stimulate demand.

When Interest Rate set to raise

If a Bank Management was quite certain that interest rates were going to rise with in the next six months, It is approrptiate for the Bank Managament to set it's repricing gap to "a positive position" so that it leads to "a net interest income" as the Bank only source of Income is " Interest " On lending.

When Interest Rate set to fall

In case interest rates set to fall in the next six months, Bank Management has to set it's repricing gap to " a negative position" so that it leads to"a net interest income" situation.

To Conclude, Bank Management moto is to earn an Income basis on the policy rate movement of a central bank.