Bank Negara’s latest rate cut a move to sustain Malaysia’s growth momentum, say analysts

The Bank Negara Malaysia logo is seen at its headquarters in Kuala Lumpur January 23, 2020. — Picture by Ahmad Zamzahuri
The Bank Negara Malaysia logo is seen at its headquarters in Kuala Lumpur January 23, 2020. — Picture by Ahmad Zamzahuri

KUALA LUMPUR, Jan 23 — Analysts have posited Bank Negara Malaysia’s (BNM) surprise announcement to cut the Overnight Policy Rate by 25 basis points yesterday as “positive” but the reason for the move may paint a different picture altogether.

The bank’s Monetary Policy Committee set the rate to 2.75 per cent — the lowest since 2011 — in a move that startled the market and placed pressure on commercial banks.

BNM said the rate cut was a pre-emptive measure against potential risks and to sustain the country’s growth momentum while prices are stable.

AmBank Group chief economist and head of research Dr Anthony Dass said it was “ahead of the curve” and timely, as a stimulus to lift business and consumer confidence and avert a recession.

“With limited fiscal flexibility and moderate exports, the bigger role will come from monetary policy,” he said in a note published yesterday.

“It is to ensure private consumption remains as the growth anchor in 2020,” he said.

While monetary easing across major economies in the second half of 2019 has helped ease financial conditions, the central bank said the financial market remains volatile to risks from geopolitical tensions and policy uncertainties in a number of countries.

Indicators and supply disruptions in commodity-related sectors have pointed to moderate expansion in the fourth quarter, the bank said, although it expects growth to gradually improve this year on the back of strong household spending and better export performance.

Banks posted soft loan growth last year, while manufacturing data suggests the sector is in a recession.

Slower hiring this year is also expected to dampen wage growth and private spending, several economists have said.

“There is growing downside risk on the services sector,” Dass said.

“If this trend continues, private consumption, which is the growth anchor for 2020, may not be able to yield fruitful results. Drag will eat into the overall business activities.”

Putrajaya expects the economy to expand by 4.8 per cent this year, slightly up from the 4.7 per cent rate forecast for 2019, against more moderate estimates.

Julia Goh, senior analyst with UOB, said the cut could stimulate spending and extend last year’s growth trajectory.

“It was a timely move to cut rates earlier to extend the stimulus effect from last year’s rate cut,” she said in a text reply to Malay Mail.

“The rate cut supports our GDP growth outlook of 4.4 per cent for this year in view of lingering headwinds from abroad and domestically.”

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