Malaysia: Bank Negara Malaysia cuts rates to lowest levels since Great Recession in May
At its 4–5 May meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) cut the overnight policy rate (OPR) by 50 basis points to 2.00%. Likewise, the ceiling and floor of the OPR corridor were also reduced to 2.25% and 1.75%, respectively. The move had been expected by market analysts and brought the rates to their lowest levels since the Great Recession.
The Bank’s cut came as both the global and domestic economic scenarios have drastically shifted since its last meeting at the beginning of March. The pandemic is sending the global economy into recession, while financial conditions tightened notably. At home, the Movement Control Order put in place to contain the outbreak is constraining economic activity and weakening labor market conditions. Inflation softened to 1.3% in March, remaining within the Bank’s forecast range of 0.7%–1.7% for 2020. However, the Bank expects deflation to take hold this year, due to markedly lower crude oil prices and falling domestic demand.
Looking at the forward guidance provided by the BNM, in its press release the Bank stated its monetary policy easing thus far this year, combined with fiscal stimulus measures, should cushion the economic blow. Moving forward, the Bank “will utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery”. Last month, several FocusEconomics panelists projected the BNM would continue to ease rates further this year. Our panel’s latest projections will be released on 26 May.
The next monetary policy meeting will be held on 6–7 July.