July 3, 2020 / 6:01 AM / a month ago

Malaysia's central bank seen cutting key rate again as pandemic persists: Reuters poll

KUALA LUMPUR (Reuters) - Malaysia’s central bank is expected to cut interest rates to a historic low next week, according to a slim majority in a Reuters poll, as it seeks to protect Southeast Asia’s third largest economy from the fallout of the coronavirus pandemic.

FILE PHOTO: A man walks past the entrance of Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia, July 31, 2019. REUTERS/Lim Huey Teng/File Photo

Bank Negara Malaysia (BNM) will cut its overnight policy rate MYINTR=ECI by at least 25 basis points (bps) to 1.75%, according to seven out of the 12 economists polled, with two of them betting on a bigger 50 bps rate reduction.

The remaining five economists expected interest rates to stay at 2.00%, already a record low, after three consecutive rate reductions in as many meetings this year.

Alex Holmes, Asia economist for Capital Economics, was one of the analysts who forecast a bigger move in the upcoming meeting.

“Given the poor outlook for growth and deeply negative inflation, we suspect the BNM will make use of its policy space and opt for a 50bp cut,” he said.

Malaysia began easing some lockdown measures imposed to contain the spread of the coronavirus in May. After growing just 0.7% in the first quarter, BNM said Malaysia is in an “unprecedented economic crisis” and was poised for a contraction in April-June.

While trade-reliant Malaysia had begun a “long and slow” recovery after some lockdown curbs were relaxed, Holmes said poor external demand and deflation warranted more policy easing.

Malaysia’s exports fell 25.5% in May, its biggest drop in 11 years.

The consumer price index fell 2.9% in May from a year earlier, as the economy grappled with subdued consumption for a third straight month.

The government in March rolled out a 260 billion ringgit ($60.69 billion) stimulus package to offset a sharp slowdown in domestic economic activity, and steep declines in tourism and demand for its commodities such as palm oil, crude oil and natural gas.

Reporting by Joseph Sipalan; Editing by Ana Nicolaci da Costa

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