MNI INSIGHT: Malaysia Central Bank Ponders Rate Cut in Q4

Malaysia's central bank is considering a fresh interest rate cut later this year as fiscal stimulus reaches a limit and the impact of the pandemic continues, MNI understands.

At its July meeting, Bank Negara Malaysia left its policy rate unchanged at 1.75%, continuing to hold steady after cutting by 125 basis points last year, with the last cut coming in July 2020.

Since then, BNM had hoped that fiscal policy and the transmission of monetary policy through to the economy would help see Malaysia through the pandemic slowdown, but MNI understands the central bank's view is that one more cut may be required.

GOVERNMENT POLICY STEPS

A new six-month loan moratorium was announced earlier in July and an estimated one million small and medium sized businesses are expected to benefit from cash payments under the USD35 billion Pemulih stimulus package.

While this program, government debt is expected to move very close to the limit of 60% of GDP set last year and although there have been calls to raise this to 65% further fiscal measures are now limited and the Government is running out of ammunition.

MNI's understanding is that BNM believes it still has enough in its own arsenal for another cut.

New Covid-19 cases have surged from a seven-day average of around 1200 at the beginning of April to more than 12,000 this week, prompting a downgrade in growth forecasts to 4% from over 6% previously.

In addition to its monetary policy, BNM has been active with targeted relief measures to sectors of the economy hard hit by the lockdown, but there is growing concern that further policy measures may be required to help the country through what is a continuing crisis.