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Malaysia Monetary Policy January 2020

Malaysia: Bank Negara Malaysia cuts rates at first meeting of the year

At its 21–22 January meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) decided to lower the overnight policy rate (OPR) by 25 basis points to 2.75%, while the ceiling and floor of the OPR corridor were reduced to 3.00% and 2.50%, respectively. The decision was in line with the majority of FocusEconomics panelists’ expectations.

Lingering risks to the outlook and anemic inflation underpinned the Bank’s policy easing in January. While the BNM highlighted improvements in the global economic outlook and defusing trade tensions, downside risks from geopolitical tensions, which could spark financial volatility; a still-uncertain outcome for trade negotiations; and, domestically, weaker commodity-related sectors cloud the outlook for the Malaysian economy. Consequently, the Committee took a pre-emptive move to revive economic activity after the economy’s more moderate performance in 2019. That said, the Bank is hopeful that grow will pick up in 2020 on a rebound in exports and investment.

Muted inflationary pressures also gave the Bank additional room to maneuver, as average inflation clocked in at 0.7% in 2019. This was at the lower limit of the Bank’s forecast range of 0.7%–1.7%. The BNM expects inflation to remain benign this year in the absence of strong demand pressures, although it will be influenced by developments in the global oil markets and price fluctuations of other key commodities.

The communiqué offered little forward guidance but did state that the current monetary policy stance was “appropriate in sustaining economic growth with price stability”. In November, a large majority of FocusEconomics panelists projected one 25-basis-point cut in 2020 and to remain steady thereafter. New forecasts will be released in the ASEAN publication on 28 January.

Commenting on the Bank’s decision, Prakash Sakpal, Asia economist at ING, stated:

“Bank Negara Malaysia’s rate cut today is yet another insurance move to support growth, while inflation remains benign. We believe BNM’s brief easing cycle has run its course.”

The next monetary policy meeting will be held on 2–3 March.

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