Malaysia’s central bank, seeing more clouds over the global economy after Britain’s Brexit vote, surprised markets by cutting its key interest rate for the first time in seven years in a bid to keep the country on a “steady growth path”.
Bank Negara Malaysia (BNM) today cut the overnight policy rate (OPR), steady since July 2014, by 25 basis points to 3%.
The Ringgit initially weakened slightly on the news, then turned firmer. For the year, the ringgit has been the region’s best-performing currency, strengthened 8.2% against the US dollar. It closed at 3.9690/9740 versus the greenback from 3.9785/9825 yesterday.
Most government bond prices rose with the 10-year yield down to 3.637%, the lowest since November 2013. Malaysian stocks rose fractionally after the cut.
In January, Malaysia revised its 2016 growth projection downwards to 4.0-4.5% from 4-5% on expectations of a sustained slump in global crude prices.
The last time the central bank cut the benchmark rate was February 2009, when it was slashed by 50 basis points to 2%.
Inflation is not a worry at present, and the central bank today cut its projection for 2016 to 2-3% from 2.5-3.5%. The annual pace was a seven-year high of 4.2% in February, but it slowed the next three months, reaching 2% in May.
BNM may consider further cuts later this year if global market conditions deteriorate, said Julia Goh, an economist for UOB Bank in Malaysia who, like many, expected a hold today.
