Malaysia's central bank cuts key interest rate to 2%, lowest since 2009

It was the central bank's third cut in as many policy meetings.
It was the central bank's third cut in as many policy meetings.PHOTO: EPA-EFE

KUALA LUMPUR (REUTERS) - Malaysia's central bank cut its key interest rate by 50 basis points to 2 per cent on Tuesday (May 5), its lowest since 2009, to help the South-east Asian economy weather the impact of the coronavirus pandemic and a collapse in prices for its energy exports.

Bank Negara Malaysia (BNM) cut its overnight policy rate a day after the government eased six-week long curbs on movement and businesses.

It was the central bank's third cut in as many policy meetings, and had been widely expected by economists polled by Reuters, with the economy expected this year to suffer its worst economic performance in more than a decade.

The central bank's monetary policy committee said the decision complements other monetary and financial measures implemented so far this year to cushion the economic impact on businesses and households and support the improvement in economic activity.

"The Bank will utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery," the central bank said in a statement.

Malaysia, which until mid-April had the highest number of infections in South-east Asia, has defended its decision to relax curbs. Health authorities on Monday reported 55 new coronavirus cases, raising the total to 6,353 cases. No fresh deaths were reported, and so far 105 people have died in Malaysia.

Prakash Sakpal, an economist with ING, said the aggressive cut in interest rates was widely expected, and unlikely to impact markets significantly.

"I think the investors would rather relish the fact that the pandemic is getting under control and the economy is opening up, albeit gradually," Mr Prakash told Reuters over email.

"That said, a deeper GDP fall in this quarter and a protracted negative growth and inflation trends in the rest of the year would warrant more policy support ahead," said Mr Prakash, who expects BNM to cut its key rate by another 50 basis points this year.

 
 
 
 

The government had rolled out a 260 billion ringgit (S$85.58 billion) stimulus package in late March to keep the economy afloat during the partial lockdown.

BNM said the outlook for growth continues to be subject to a high degree of uncertainty, "particularly with respect to developments surrounding the pandemic".

In April, BNM said its current best estimate is for the economy to either shrink by as much as 2 per cent or grow marginally at 0.5 per cent this year due to the coronavirus pandemic, but stressed that "great uncertainty remains".

The central bank had projected exports to contract by as much as 8.7 per cent in 2020, as key trading partners struggled with the pandemic. The collapse in global oil prices has also hit Malaysia's export earnings from liquefied natural gas.