For the first time in almost 3 years, the central bank of Malaysia decided to slash its key rate. The move, which aims to ease monetary policy, was the first among Southeast Asian nations. The cut took effect on Tuesday. Bank Negara Malaysia cut its overnight policy rate by 25 basis points to 3%. It was July 2016 when Malaysia last brought down the rate.
The bank said, “while domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness”.
The bank added, “MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation”.
Several factors that contributed to the rate cut include a slowdown in exports both in February and March. Also, inflation is lingering at around 0%.
More easing is expected
Capital Economic’s Alex Holmes said he expects further easing later this year, saying forecasts for growth and inflation in Malaysia are low. Furthermore, trade tensions between the U.S. and China likely added fuel to the fire, according to Holmes.
Last year, Asian economies such as India, Indonesia, Thailand, and the Philippines tightened their policy to support their declining currencies. The U.S.-China trade tensions will now force them to change course.
India has so far cut its rate twice this year. The Philippines may also do the same this week, according to economists. Meanwhile, Thailand will make a decision on Wednesday.
Worst-performing stock market
Malaysia’s stock market has the worst performance so far in the Asian region. “Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities,” the bank said.
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