A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia. REUTERS/Lim Huey Teng
A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia. REUTERS/Lim Huey Teng

Malaysian central bank cuts rate for second time this year

By Xinhua Time of article published Mar 4, 2020

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KUALA LUMPUR - Malaysian Central Bank, Bank Negara Malaysia, announced to reduce its policy rate by 25 basis points to 2.5 percent to support the country's economy.

The bank said in a statement that the monetary policy committee (MPC) has decided to lower the Overnight Policy Rate (OPR) to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability.

The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.75 percent and 2.25 percent, respectively.

"MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation," said the central bank.

This was the bank's second rate cut this year. The bank had in January lowered its OPR rate by 25 basis point to 2.75 percent.

The central bank warned that Malaysia's first quarter economic growth will be affected by the COVID-19 outbreak primarily in the tourism-related and manufacturing sectors.

The weakness in the agriculture sector is also likely to persist in the first quarter, according to the bank.

The bank believed that private and public sector activities will be supportive of growth for 2020.

Household spending is expected to grow at a slower pace amid moderate employment and income growth; investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors, according to the bank.

It also opined that the 2020 economic stimulus package will provide some support to economic activity. The Malaysian economy grew at a moderate pace of 4.3 percent in 2019.

On global economy, the bank noted that global economic conditions have weakened in the recent period, as the ongoing COVID-19 outbreak has disrupted production and travel activity, especially within the region.

Meanwhile, headline inflation for Malaysia is expected to average higher but remain modest in 2020.

The trajectory of headline inflation will be dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings, according to the bank.

"Underlying inflation is expected to be more moderate, amid limited demand pressures despite the continued expansion in economic activity," said the bank.

Economists are expecting another rate cut in Malaysia at the upcoming MPC meeting in May.

"Inflation is unlikely to get in the way. While the headline rate rose to 1.6 percent in January, it is still low by past standards and should fall back over the months ahead, as weakening demand weighs on underlying price pressures," Capital Economics said in a note Tuesday.

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