World News

Malaysia’s central bank seen standing pat, saving ammunition for later: Reuters poll

By Joseph Sipalan

KUALA LUMPUR (Reuters) – Malaysia’s central bank is expected to keep its benchmark interest rate unchanged at a policy review on Wednesday, a Reuters poll showed, saving its ammunition for use during a possible slowdown in economic growth later in the year.

All but one of 14 economists polled forecast Bank Negara Malaysia (BNM) will hold its overnight policy rate <MYINTR=ECI> at 3.00%, as global confidence improved after the United States and China signed a preliminary trade deal to defuse their bitter 18-month tariff war that has hit world growth.

One expects the central bank to cut its key rate by 25 basis points.

BNM will likely push back any plans for a rate cut to the second quarter of this year, analysts at Capital Economics said, as the government waits to see the effects of tightened fiscal policy to bring the budget deficit down to “a more sustainable level”.

“The consumer sector is likely to bear the brunt of the falls, and we are forecasting a sharp slowdown in consumer spending this year,” they said in a client note on Friday, projecting Malaysia’s economy to grow 3.8% in 2020.

Prime Minister Mahathir Mohamad’s administration unveiled a smaller-than-expected budget for this year while flagging a wider budget deficit than earlier estimated, as it sees lower revenue while it continues to grapple with a 1 trillion ringgit ($246.82 billion) debt pile left behind by its predecessors.

The government expects the economy to expand by 4.8% this year, slightly up from the 4.7% rate forecast for 2019.

BNM last cut its benchmark rate in May, its first easing since July 2016, as a preemptive move to support the economy amid growing concerns over global growth.

Export-reliant Malaysia has seen shipments fall for four straight months between Aug-Nov, but a bigger concern would be a possible slowdown in domestic spending due to the government’s tighter fiscal position, Standard Chartered said.

“We expect BNM to keep the policy rate on hold in 2020; however, risks are skewed toward a rate cut,” it said in a research note.

“If domestic sentiment continues to sour despite the external pick-up and pushes GDP growth to low-4% levels, BNM may have to move again.”

(Reporting by Joseph Sipalan; Editing by)