Bank Negara Malaysia cut its key interest rate by 25 basis points to 3 percent today. There were some marked changes in the central bank’s Monetary Policy Statement compared to March’s. BNM stated that in spite of higher-than-expected growth in the first quarter in some countries, underlying conditions indicate towards an easing in global growth going forward.
The central bank affirmed that the latest economic indicators indicate towards moderate activity in the first quarter. It also showed a weaker outlook even if the 2019 GDP forecast range of 4.3 percent to 4.8 percent was maintained. The BNM replaced the wording “to remain on a steady growth path” with “within the projected range of 4.3-4.8 percent”. The BNM retained the downside risks arising from uncertainties in the global and domestic environment, trade tensions and low commodity prices.
The central bank retained its previous position that the headline inflation is likely to be widely stable in 2019 as compared to 2018. The BNM also maintained that the headline inflation has been lower mainly owing to policy measures and that underlying inflation excluding the effect of consumption tax changes continues to be stable at 1.6 percent year-on-year.
The BNM is of the view that there are “some signs of tightening in financial conditions” and that the “adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness”.
“While it is not clear which financial variables BNM has taken into consideration, the weakness in the equity market, higher real interest rates and weaker real estate prices may be some of them”, noted ANZ.
According to ANZ, the Malaysian economy is likely to grow 4.4 percent this year, closer to the lower end of the official forecast band. Consumption indicators, such as retail and auto sales, in 2019, have been lacklustre with softening consumer sentiment. Other indicators like business sentiment, credit growth and exports also indicate toward sluggish economic activity.
“At the same time, we do not expect any further cuts in the OPR. Outside of crisis periods, the amplitude of the OPR has been low ranging from 3 percent to 3.5 percent”, added ANZ.
