Bank Negara holds interest rates on tentative signs of recovery

[KUALA LUMPUR] Malaysia's central bank kept its key interest rate steady at a record low on Thursday, holding fire after four consecutive rate cuts this year, as the coronavirus-hit economy showed tentative signs of recovery.

Bank Negara Malaysia (BNM) left its overnight policy rate at 1.75 per cent. Six out of 13 economists polled by Reuters had expected rates to remain unchanged, with a slim majority betting on a rate cut.

The central bank said labour market conditions, household spending and trade activity had continued to improve and that its monetary stance remained "appropriate" given the growth and inflation outlook.

But with the pace of recovery likely to be uneven across sectors, the central bank flagged some "downside risks and uncertainty" and said it would seek to secure a sustained rebound.

"The Bank remains committed to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery." Malaysia's export-reliant economy saw its worst slump ever in the April-June period due to the fallout from the coronavirus pandemic, but has shown some signs of recovery, with a rebound in exports at the start of the third quarter.

The central bank has already delivered 125 bps of rate cuts this year while the government has also rolled out fiscal stimulus to help the economy throughout the pandemic.

Southeast Asia's third-largest economy shrank 17.1 per cent in the second quarter, its first quarterly contraction since the 2009 global financial crisis, and BNM now expects the economy to slump 3.5 per cent to 5.5 per cent in 2020.

REUTERS