PublicInvest Revises Base Case, Expects 25bps OPR Cut in 3Q2025

Strategic Insights -

PublicInvest, a Malaysian investment bank, has revised its base case to include a 25 basis point cut in the Overnight Policy Rate (OPR) in the third quarter of 2025, contingent upon continued tariff suspensions and stable domestic conditions. This move follows Bank Negara Malaysia's recent decision to keep the OPR unchanged at 3.0 percent and lower the Statutory Reserve Requirement (SRR) to 1.0 percent, releasing approximately RM19 billion into the banking system to support economic growth. PublicInvest notes that the central bank's policy statement highlighted several downside risks, including a slowdown in key export markets, weaker consumer and business sentiment, and softening commodity output. The firm believes the SRR cut represents a proactive measure to ease liquidity pressures and safeguard domestic growth, despite the limited impact on earnings for real estate investment trusts (REITs) under its coverage.

Key Takeaways:

  • PublicInvest has revised its base case to include a 25bps OPR cut in 3Q2025, subject to continued tariff suspensions and stable domestic conditions.
  • The OPR remains unchanged at 3.0 percent, but a 1.0 percent SRR cut has been implemented, releasing approximately RM19 billion into the banking system.
  • The central bank's policy statement highlighted several downside risks, including a slowdown in key export markets and weaker consumer and business sentiment.
  • The SRR cut is expected to ease liquidity pressures and safeguard domestic growth, despite the limited impact on REITs under PublicInvest's coverage.
  • PublicInvest estimates a 1.0 to 2.0 percent reduction in interest costs for REITs with floating-rate loans in the event of a 25bps OPR cut.
  • Sunway REIT (SREIT) is preferred for its diverse asset portfolio and ambitious growth plan, with a revised target price of RM2.10 and an implied forward dividend yield of approximately 5.5 percent.
  • Rental reversions for malls in key urban locations are expected to remain flat in the near term due to incoming retail supply and market uncertainty stemming from trade tensions.

Statistics:

  • RM19 billion: The amount released into the banking system following the 1.0 percent SRR cut.
  • 1.0 to 2.0 percent: Potential reduction in interest costs for REITs with floating-rate loans in the event of a 25bps OPR cut.
  • 25bps: The expected OPR cut in 3Q2025.
  • RM2.10: Revised target price for Sunway REIT (SREIT).
  • 5.5 percent: Implied forward dividend yield for Sunway REIT (SREIT) based on financial year 2026 estimates.
  • 6.0 percent: Average gross yield offered by Kuala Lumpur-listed REITs.

Sources:

  • PublicInvest Bank
  • Bank Negara Malaysia
  • Sunway REIT (SREIT)