UPDATE 3-Malaysia surprises with first cut in banks' reserve ratio in 3 years

* Reserve requirement cut to 3% from 3.5%
* First cut in statutory reserve requirement since Jan 2016
* Economists say move unexpected, suggests slowness in
economy
* Cut to be followed by reduction in key interest
rate-economists
* Central bank says SRR does not signal monetary policy
stance

(Adds central bank comment on monetary policy, paragraph 5)
By Joseph Sipalan
KUALA LUMPUR, Nov 8 (Reuters) - Malaysian banks' statutory
reserve requirement (SRR) will be reduced to 3.00% from 3.50%,
effective Nov. 16, the central bank said on Friday, the first
cut in three years and made days after it left its key policy
interest rate unchanged.
Economists said the move suggested that Southeast Asia's
third-biggest economy was slowing down in the second half. It
also sets the stage for an interest rate cut in Bank Negara
Malaysia's (BNM) next policy review in late January, they added.
"The decision to reduce the SRR is undertaken to maintain
sufficient liquidity in the domestic financial system," the
central bank said in a statement.
"This will continue to support the efficient functioning of
the domestic financial markets and facilitate effective
liquidity management by the banking institutions."
BNM, however, said the SRR was not a signal on the stance of
monetary policy.
The central bank on Tuesday maintained its key overnight
policy rate at 3.00% - as expected - betting that private sector
spending would offset pressure in the economy from weaker
exports. Malaysia's exports in September recorded their biggest
decline in nearly three years. Economists said the cut in SRR - the minimum amount of
reserves that must be held by a commercial bank - should bring
down the interbank lending rate and boost loan growth.
They said it was too early to say how much money the move
would free up, but the last time the BNM cut https://www.reuters.com/article/malaysia-economy-liquidity/malaysia-c-bank-seen-taking-more-steps-as-liquidity-remains-tight-idUSL3N1562TO
the SRR in January 2016 from 4%, economists estimated it added
6 billion ringgit ($1.45 billion) to the system.
"It's a major move, it was totally unexpected given what
they signaled just this week in the policy statement which was
pretty much quite balanced in its tone of risk," ING Asia
economist Prakash Sakpal said.
"We should see GDP slowdown continuing towards the end of
the year. It won't be outside BNM's forecast of 4.3%-4.8% for
this year, but clearly the downtrend will eventually force BNM
to cut its overnight policy rate."
Alex Holmes, an Asia economist with Capital Economics, said
the Philippines saw growth in credit and broad money supply
after a similar move last month. "BNM tends to be forward looking, they were the first to cut
the key rate in the region back in May," Holmes said.
"It was kind of a surprise that they didn't cut this week,
but they also tend to move in small increments and leave a long
time between cuts. We think they will cut in either January or
March."
($1 = 4.13 ringgit)