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Malaysia’s First Rate Cut in 7 Years

Malaysia’s First Rate Cut in 7 YearsMalaysia’s First Rate Cut in 7 Years

Malaysia’s new central bank Governor Muhammad Ibrahim unexpectedly cut interest rates for the first time in seven years, joining Asian counterparts from Indonesia to Taiwan in easing policy as global risks mount.

In his second rate-setting meeting since taking office two months ago, Muhammad lowered the overnight policy rate by 25 basis points to 3%, a decision that came as a surprise to all but one of the 18 economists surveyed by Bloomberg.

Muhammad has faced increasing pressure to lower borrowing costs to spur an economy projected to expand at the slowest pace in seven years amid falling oil revenue and weaker exports. The UK’s surprise decision last month to leave the European Union has clouded the global growth outlook, denting demand for Malaysian goods.

Muhammad’s predecessor, Zeti Akhtar Aziz, had kept the benchmark rate unchanged since July 2014, when it was raised by 25 basis points.

Lower oil costs and subdued global price pressures enabled the central bank to cut its inflation forecast for this year to 2% to 3% from 2.5% to 3.5%, it said. Consumer prices rose 2% in May from a year ago.

The rate cut “is intended for the degree of monetary accommodativeness to remain consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid stable inflation,” Bank Negara Malaysia said in a statement.

The ringgit fell 0.1% to 3.98 against the dollar in Kuala Lumpur, taking its gain this year to 7.7%, the best performer in Asia after Japan’s yen. Yields on the three-year government bond dropped four basis points to 3.01%.

 

Financialtribune.com