Malaysia’s First Rate Cut Since Early 2009

July 13, 2016

Warning that ” the uncertainties in the global environment could weigh on Malaysia’s growth prospects,” a statement released by the Monetary Policy Committee of Bank Negara Malaysia justifies a 25-basis point interest rate cut to 3.0%.  External downside growth risks look greater: “Global growth prospects have become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom. International financial markets could also be subject to greater volatility going forward.”  Secondly, ” inflation is projected to be lower at 2 – 3 percent in 2016, compared to an earlier projection of 2.5 – 3.5 percent, and continue to remain stable in 2017.”  A third argument concerns Malaysia’s resilience: “The risks of destabilizing financial imbalances have receded. Both macro and micro prudential measures as well as supervisory oversight have resulted in more prudent lending standards and contained speculative activities in the property market.”

Not since a rate cut to 2.0% in February 2009 had the overnight policy rate been reduced.  That easing had been followed by five 25-basis point increases implemented in March, May and July of 2010, May 2011 and July 2014. The central bank recently got a new governor.  Economic growth had not been a problem and is projected to expand slightly more than 4.0% this year because of sturdy domestic demand.  Today’s unexpected rate cut should make that forecast likelier to prove accurate.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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