KUALA LUMPUR: CGS-CIMB Equities Research estimates the 25bp cut in base lending rate (BLR) could lower its 2020 KLCI earnings estimates by 1.5% and its end-2020 FBM KLCI target of 1,636 by 25 points.
It said on Thursday the KLCI fell in the three months following four out of the past five rate cuts. This reveals that though a rate cut would help businesses lower their borrowing costs, it may not be sufficient to boost KLCI performance as bank earnings may be negatively impacted by this move.
“Overall, we are of the view that the 25 basis points cut in the Overnight Policy Rate (OPR) is likely to be negative for overall KLCI earnings, as the impact from the net interest margin squeeze on banks appear to be higher than potential interest savings for KLCI constituent companies," it said.
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