Malaysia’s central bank seen slashing key rate by 50 bps on pandemic worries: Reuters poll – Metro US

Malaysia’s central bank seen slashing key rate by 50 bps on pandemic worries: Reuters poll

A general view of the Central Bank of Malaysia (Bank
A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur

KUALA LUMPUR (Reuters) – Malaysia’s central bank is expected to make the biggest cut to its benchmark interest rate since 2009 next week, a Reuters poll showed, to prop up an economy struggling with the effects of the coronavirus pandemic.

Seven out of 10 economists polled saw Bank Negara Malaysia (BNM) cutting its overnight policy rate <MYINTR=ECI> by 50 basis points to 2%, matching the historic low set in 2009 during the global financial crisis.

One saw a smaller cut of 25 basis points, while two did not expect any change.

Should the central bank cut its key rate by 50 basis points, it would be the single biggest cut since February 2009.

The “unprecedented crisis” posed by the coronavirus pandemic may push BNM to slash its policy rate even further below 2% moving forward in a bid to soften the impact, said Prakash Sakpal, an economist with ING.

“It seems like everything is coming crashing down. The global demand destruction due to pandemic has crushed the global oil price. Domestically, nearly two months of movement restrictions to combat the disease have depressed activity significantly,” Prakash told Reuters over email.

“While GDP growth is poised for a big hit from all this, inflation has already slipped into the negative territory, warranting aggressive policy easing by BNM at the forthcoming meeting.”

Earlier this month, BNM said its current best estimate is for the economy to either shrink by as much as 2% or grow marginally at 0.5% this year due to the coronavirus pandemic, but stressed that “great uncertainty remains”.

The central bank also forecast exports to contract by as much as 8.7% in 2020, as key trading partners struggled with the pandemic.

The government has rolled out a 260 billion ringgit ($60.12 billion) stimulus package to keep the economy afloat as curbs on movement and business to contain the spread of the coronavirus ground activity to a near halt in Southeast Asia’s third-largest economy.

The stimulus measures are expected to widen the fiscal deficit to 4.7% in 2020, wider than the 3.2% projected late last year.

However, BNM may alternatively opt to keep rates unchanged for now as it has already made cuts at its past two reviews and released more banking liquidity by cutting its statutory reserve requirement ratio, according to Kenanga Investment Bank.

“Furthermore, the reason could also be that it may want to observe the impact of large government fiscal stimulus package to support the economy,” Kenanga said in a research note.

(Reporting by Joseph Sipalan; Editing by Sam Holmes)

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