Malaysia cuts key rate as global central banks act amid virus

[SINGAPORE] Malaysia cut its benchmark interest rate on Tuesday, following other central banks in boosting stimulus to counter the impact of the coronavirus on economic growth.

Bank Negara Malaysia reduced the overnight policy rate for a second time this year, lowering it by 25 basis points to 2.5 per cent, as predicted by 15 of 24 economists surveyed by Bloomberg. Australia's central bank cut its rate by the same magnitude on Tuesday, while Indonesia relaxed the reserve ratio for banks a day earlier.

The rate cut "is intended to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability", the central bank said in a statement.

Malaysia's effort to shore up the economy amid fresh threats to growth takes the key interest rate to its lowest level since July 2010. The policy easing follows the RM20 billion (S$6.63 billion) fiscal stimulus package last week to counter the impact of the virus outbreak.

The central bank said first-quarter economic growth will be affected by the virus outbreak, especially tourism and manufacturing industries.

"Although domestic growth is expected to gradually improve in the second half of the year, there are key downside risks, mainly stemming from the evolving nature and prolonged impact of the Covid-19 outbreak, and continued weakness in commodity-related sectors," it said.

POLITICAL TURMOIL

The world's top central banks have signalled a willingness to coordinate policy support as the coronavirus slams economies from Beijing to Rome to Washington. The Federal Reserve, Bank of England, Bank of Japan and European Central Bank all have pledged to act in response to the rising risk to their economies. Group of Seven policymakers are set to discuss options later on Tuesday.

Malaysia is also grappling with a political leadership battle that threatens to stall economic policy. Muhyiddin Yassin was appointed prime minister on the weekend after a roller-coaster week in which the ruling coalition collapsed.

The government last week revised its official economic forecast for 2020 to 3.2 per cent to 4.2 per cent, down from 4.8 per cent previously. It also widened the fiscal deficit target to 3.4 per cent of gross domestic product, from 3.2 per cent.

BLOOMBERG