Malaysia Joins Asia Easing Cycle With Quarter-Point Rate Cut

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Malaysia's central bank cut its benchmark interest rate for the first time since July 2016, seeking to support the economy as global risks mount.

Bank Negara Malaysia reduced the overnight policy rate by a quarter percentage point to 3 percent, as predicted by 14 of 23 economists surveyed by Bloomberg. The rest forecast no change.

Policy makers in the Southeast Asian nation are bracing for slower growth as exports take a knock from weaker global demand and rising trade tensions. The central bank is forecasting expansion of 4.3 percent to 4.8 percent this year, lower than the government's projection of 4.9 percent.

“There are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors,” the central bank said in a statement.

Asian central banks are shifting to more dovish policy stances after the U.S. Federal Reserve pumped the brakes on rate hikes and growth outlooks soured. Malaysia becomes the second Asian nation after India to lower interest rates this year. New Zealand and the Philippines may also ease this week.

What Bloomberg's Economists Say

BNM is not taking any chances on U.S. tariff threats to global demand and commodity prices. Another rate cut cannot yet be ruled out.
-- Tamara Henderson, Asean economist

Given the tightening in financial conditions, the rate cut is “intended to preserve the degree of monetary accommodativeness,” the central bank said. “This is consistent with the monetary policy stance of supporting a steady growth path amid price stability.”

The tone of the statement suggests the rate cut may be a one-off move rather than the start of an aggressive easing cycle, according to analysts at Mizuho Bank Ltd. and UBS AG.

The policy move was “not because they thought growth was slowing dramatically” or that inflation was problematic, but that they saw “growing risks” in both of those areas, said Edward Teather, an economist at UBS in Singapore. He doesn't see a “major” rate-cutting cycle for Malaysia.

Inflation remains subdued, reaching 0.2 percent in March, and is expected to be “broadly stable compared to 2018,” according to the central bank. The outlook will depend on oil prices, it said.

The ringgit was little changed at 4.1480 against the dollar as of 3:45 p.m. in Kuala Lumpur on Tuesday. It's weakened 1.5 percent against the dollar in the past month, among the worst performers in Asia, as the U.S. currency gained and sentiment slumped. Outflows from bonds may worsen if FTSE Russell drops Malaysia from its global index in September.

“We think the overall tone of the statement sounded neutral after the cut,” said Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities Ltd. in Singapore. “The cut appears to be preemptive in nature, in order to preserve the degree of monetary accomodativeness.”

To contact the reporters on this story: Yudith Ho in Kuala Lumpur at yho35@bloomberg.net;Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michelle Jamrisko

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