Economists Split on a Third Malaysian Rate Cut as Growth Slows
Economists are divided on whether Malaysia’s central bank will lower its benchmark interest rate for a third straight meeting to bolster an economy that probably expanded at the slowest pace in seven years last quarter.
Bank Negara Malaysia may keep its overnight policy rate unchanged at 2.5 percent today, according to 8 of 15 economists surveyed by Bloomberg News. Six expect a half-point cut and one predicts a quarter-point reduction in the decision due at 6 p.m.
Governor Zeti Akhtar Aziz, who cut borrowing costs by the most in more than a decade last month as the global recession deepened, said Feb. 11 the reduction had been “frontloaded” and that the current rate would hold pending further developments. Reports since then show that inflation has eased further and exports fell the most in almost seven years.
“It would be unreasonable for another rate cut this soon,” said Patricia Oh, an economist at TA Securities Holdings Bhd. in Kuala Lumpur. “Ample liquidity and accessibility to loan financing is more crucial at this point of time.”
The central bank reduced the statutory reserve requirement, or the amount of money lenders need to set aside, for a second straight meeting on Jan. 21 when it cut the key interest rate by three quarters of a percentage point. It’s reduced borrowing costs 1 percentage point since late November.
Government bonds fell yesterday on speculation Bank Negara will refrain from cutting its policy rate today. The yield on the 3.833 percent note maturing in September 2011 jumped six basis points to 2.86 percent, according to Bursa Malaysia Bhd. A basis point is 0.01 percentage point.
‘Huge Uncertainty’
Still, slowing economic growth may prompt the central bank to reduce borrowing costs this month before pausing, said economists including Nikhilesh Bhattacharyya at Moody’s Economy personal loans for people with bad credit.com in Sydney.
“There is a huge amount of uncertainty at this stage concerning the Malaysian economy,” said Bhattacharyya, who predicts a quarter-point cut today. “Inflation is set to ease, giving the central bank room to move. But Bank Negara’s policy rate is already low, constraining its ability to deliver sizeable rate cuts.”
Southeast Asia’s third-largest economy probably expanded 1.4 percent last quarter, the weakest pace since 2001, according to the median forecast of 14 economists surveyed by Bloomberg. The $181 billion economy may shrink 4 percent in 2009, Nomura Holdings Inc. said last week, which would be the worst performance in 11 years.
Exports of made-in-Malaysia Intel Corp. computer chips, IOI Corp. palm oil and other goods slumped 14.9 percent in December and Trade Minister Muhyiddin Yassin predicts shipments may fall as much as 4 percent this year as global demand collapses and commodity prices fall from last year’s records.
Technical Recession
Malaysia is moving “closer to the edge of technical recession,” said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore. “As the cushion from commodity prices evaporates, Malaysia’s growth performance should converge with those of other regional tech exporters like Taiwan and Singapore.”
Finance Minister Najib Razak is due to unveil a second economic stimulus package next month to supplement a 7 billion ringgit ($1.9 billion) spending plan announced in November as the government tries to prevent the economy from following Asian exporters including Singapore and Taiwan into recession.
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