Malaysia unexpectedly cuts benchmark rate in 'pre-emptive measure'

KUALA LUMPUR • Malaysia's central bank cut its benchmark interest rate in a surprise move yesterday, the first in South-east Asia to do so this year as it seeks to support its economy amid lingering global uncertainty.

Bank Negara Malaysia reduced the overnight policy rate to 2.75 per cent, a 25 basis point cut predicted by just two of the 26 economists surveyed by Bloomberg. The rest forecast no change.

The central bank is moving to bolster confidence in Malaysia's economy since it began showing signs of strain from the global slowdown last year. The bank cut the statutory reserve ratio requirement last November as growth weakened in the third quarter.

The adjustment to the policy rate "is a pre-emptive measure to secure the improving growth trajectory amid price stability", the central bank said in an e-mailed statement.

Malaysia's economy is showing signs of picking up after a lacklustre year confronting external risks. Last month's manufacturing Purchasing Managers' Index signalled an expansion in factory output for the first time in 15 months. Industrial production grew at a five-month high of 2 per cent last November from the previous year.

While the recent signing of a United States-China trade deal may not impact Malaysia's exports immediately, there are signs of improvement. Shipments fell for the fourth consecutive month last November, but exports to the US continued to rise and shipments to China rebounded.

The central bank cut rates once last year by 25 basis points, less than the easing carried out by many of its South-east Asian peers. In November, it unexpectedly lowered the required reserve ratio for banks to help improve liquidity.

Moody's on Monday reaffirmed its A3 rating for Malaysia, citing a large, diversified and competitive economy, strong medium-term growth prospects and ample natural resources.

Inflation was 0.7 per cent last year, below the official forecast of 0.9 per cent, as transport costs fell due to a blanket subsidy for petrol. The government is forecasting 2 per cent inflation this year.

BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on January 23, 2020, with the headline Malaysia unexpectedly cuts benchmark rate in 'pre-emptive measure'. Subscribe