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Malaysia Monetary Policy March 2020

Malaysia: Bank Negara Malaysia cuts rates again at March meeting

At its 2–3 March meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) voted to lower the overnight policy rate (OPR) by 25 basis points to 2.50% while the ceiling and floor of the OPR corridor were reduced to 2.75% and 2.25%, respectively. The move had been expected by market analysts.

The decision came amid growing risks to the outlook from the coronavirus outbreak, which has taken a toll on the Chinese economy, global supply chains, and tourism. The BNM noted that the epidemic has caused tighter financial conditions and sparked “a resurgence in market volatility”. Consequently, the risks to global growth have sharply increased in recent weeks. Moreover, since the Bank’s last meeting in January, national accounts data showed that economic growth slumped to an over one-decade low in Q4 2019, weighed on by a frail external sector. Undoubtedly, the outbreak will take a sizeable bite out of growth in the first quarter of this year, primarily due to declining tourism and manufacturing production, as well as ongoing weakness in commodity sectors. Elsewhere in the economy, fiscal stimulus and recovering investment activity should cushion the slowdown.

Turning to inflation, the Bank expects price pressures to pick up in 2020; however, they will likely remain modest. The BNM noted the timing of the removal of the domestic retail fuel price ceiling and ongoing developments in global oil markets will be important determinants for the inflation outlook. Inflation rose to 1.5% in January (December: 1.0%), edging closer to upper bound of the Bank’s forecast range of 0.7%–1.7% for 2020.

Given the rapidly changing external situation owing to the coronavirus outbreak, FocusEconomics panelists are reassessing their forecasts for both the Malaysian economy and monetary policy outlook, with new projections to be released on 24 March. In any case, new forecasts are likely to see the Bank easing rates further, particularly if the economic fallout from COVID-19 intensifies.

The next monetary policy meeting will be held on 4–5 May.

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