Interest Rate in Malaysia

Malaysia - Interest Rate

Bank Negara Malaysia slashes rate to all-time low in July to support economic recovery

At its 7 July meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) cut the overnight policy rate (OPR) by 25 basis points to 1.75%, an all-time low. Likewise, the ceiling and floor of the OPR corridor were reduced to 2.00% and 1.50%, respectively. The move had been largely expected by market analysts and marked the fourth cut so far this year.

The decision to broaden monetary stimulus intends to accelerate the rate of economic recovery in the second half of the year as the economy emerges from the Covid-19 shock. Although financial conditions have stabilized domestically and abroad, labor market weakness and postponed expenditure by households and businesses pose downside risks to the recovery ahead. Moreover, annual consumer prices fell 2.9% in May (April: -2.9%), marking a three-month disinflationary trend, thus providing the Bank with enough room to broaden monetary stimulus.

Looking at the forward guidance provided by the BNM, in its press release the Bank maintained a dovish tone, signaling that it remains prepared to take additional measures in order to ensure a sustainable economic recovery. In addition, the Bank expects inflation to be muted for the remained of the year amid low commodity prices.

With regards to the outlook for monetary policy, analysts at Nomura noted:

“We reiterate our forecast that BNM will cut again by 25bp at its next MPC meeting in September to 1.5% (there are only two remaining MPC meetings this year – September and November). We believe activity data and headline inflation will still likely disappoint official forecasts even after the relaxation, as a quick return to normal conditions is unlikely because of the remaining strict guidelines, as well as the negative spillover effects from weak exports and the tourism sector to the rest of the domestic economy. [...] We reiterate our 2020 GDP growth forecast of -5.8% y-o-y from 4.3% in 2019, which is below the latest official forecast range of -2.0% to 0.5%.”

The next monetary policy meeting will be held on 10 September.

FocusEconomics panelists are still assessing the latest developments.