Bank Negara surprises market by cutting benchmark rate to 3pc

The headquarters of Bank Negara Malaysia in Kuala Lumpur, March 30, 2015. — Picture by Yusof Mat Isa
The headquarters of Bank Negara Malaysia in Kuala Lumpur, March 30, 2015. — Picture by Yusof Mat Isa

KUALA LUMPUR, July 13 — Malaysia's central bank surprised markets today by cutting its key interest rate for the first time in seven years, saying the move would help the country remain on a “steady growth path.”

Bank Negara Malaysia (BNM) cut the overnight policy rate (OPR) by 25 basis points to 3.00 per cent.

“Global growth prospects have also become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom,” BNM said.

“International financial markets could also be subject to greater volatility going forward. In this light, global monetary conditions are expected to remain highly accommodative,” it added.

All 13 economists in a Reuters poll had forecast no change to BNM's key rate. The widely-held view was that there was no strong push factor for any shift in policy now.

South-east Asia's third-largest economy has posted five quarters of slowing growth tied to weakness in global crude and commodity prices.

In January, Malaysia revised its 2016 growth projection downwards to 4.0-4.5 per cent from 4.0-5.0 per cent on expectations of a sustained slump in global crude prices.

The last time the central bank cut the benchmark rate was in February 2009, when it was slashed by 50 basis points to 2.00 per cent.

Inflation is not a worry for the central bank. The annual pace was a seven-year high in February, at 4.2 per cent, but it slowed the next three months, reaching two per cent in May, and BNM expects it to trend lower for the rest of the year due to low energy and commodity prices as well as tepid global inflation.

Today's monetary policy committee meeting was the second chaired by Governor Muhammad Ibrahim, who succeeded longtime chief Zeti Akhtar Aziz on May 1. — Reuters

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