Malaysia’s central bank on Tuesday slashed its interest rate for the first time in nearly three years, citing several downside risks to the economic growth outlook.
The Bank Negara’s Monetary Policy Committee decided to cut the Overnight Policy Rate by a quarter-point to 3 percent. The decision was in line with economists expectations.
The previous change in the key interest rate was a quarter-point hike in January 2018, to 3.25 percent.
The latest interest rate cut was the first since July 2016.
“While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions,” the bank said.
“The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness.”
Recent data suggest moderate economic activity in the first quarter of this year, the bank said. Looking ahead, slowing global demand and subdued growth of key trading partners will continue to dampen the external sector.
Meanwhile, stable labor market conditions and capacity expansion in key sectors are expected to continuing driving household and capital spending.
The bank projected Malaysia’s economic growth for this year in the 4.3-4.8 percent range.
“However, 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 bank said.
Inflation is forecast to remain broadly stable this year.
“Today’s rate cut still leaves the central bank with a sufficient interest rate buffer if economic conditions deteriorate further, but this may not be required,” ING economist Prakash Sakpal said.
“We expect the timely policy boost together with the favorable base effect to shore up growth in the rest of the year towards the top end of the forecast range,” Sakpal added.
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