BNM likely to slash interest rate to record low, says survey

Bank Negara Malaysia is expected to cut interest rates next week to cushion the nation against the impact of Covid-19.

PETALING JAYA: Bank Negara Malaysia is expected to cut interest rates to a record low next week, a Reuters survey showed, as it seeks to cushion the nation against the impact of the Covid-19 pandemic.

Seven out of the 12 economists polled by Reuters said they expected BNM to cut its overnight policy rate (MYINTR=ECI) by at least 25 basis points (bps) to 1.75%, with two predicting an even bigger 50 bps rate reduction.

The remaining five economists expected interest rates to remain at 2%, already a record low, after three consecutive rate reductions in as many meetings this year.

One of those expecting a 50 bps reduction was Alex Holmes, Asia economist for Capital Economics.

“Given the poor outlook for growth and deeply negative inflation, we suspect BNM will make use of its policy space and opt for a 50bp cut,” he said.

Holmes said poor external demand and deflation warranted more policy easing as Malaysia starts a “long and slow” recovery after some lockdown restrictions were eased.

BNM said Malaysia is in an “unprecedented economic crisis” and poised for a contraction in April-June after growing just 0.7% in the first quarter.

Malaysia’s exports fell 25.5% last month, its biggest decline in 11 years. The consumer price index was also down 2.9% from a year earlier, as the economy grappled with subdued consumption for a third straight month.

In March, the government rolled out a RM260 billion stimulus package to offset a sharp slowdown in domestic economic activity, and steep declines in tourism and demand for commodities such as palm oil, crude oil and natural gas.

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