Will Bank Negara Malaysia cut interest rates again this year?

Question

Accepted Answer

Bank Negara Malaysia is Predicted to Cut Interest Rates Again This Year

Fitch Solutions Country Risk and Industry Research forecasts that Bank Negara Malaysia (BNM) will implement another 25 basis point cut to its key policy rate, bringing it down to 1.50 per cent by the end of 2021. This anticipated move is intended to provide further support to the Malaysian economy, which is facing challenges from the ongoing third wave of Covid-19 infections and the reintroduction of the movement control order (MCO). The research firm has maintained its average inflation forecast for Malaysia at 1.8 per cent year-on-year, indicating that a stable inflationary environment will permit further reductions in interest rates without triggering significant price pressures.
Anticipated Policy Rate Reduction

Fitch Solutions projects that BNM will reduce its Overnight Policy Rate by an additional 25 basis points by the close of 2021. This decision is seen as a necessary measure to bolster the Malaysian economy, which has been impacted by the sustained third wave of Covid-19 infections and the subsequent reimposition of the MCO. The central bank's previous decision on March 4 was to maintain the rate at 1.75 per cent, while expressing expectations for economic recovery to commence from the second quarter of 2021.
Benign Inflationary Environment Supports Rate Cuts

The research firm has kept its average inflation forecast for Malaysia at 1.8 per cent year-on-year. This stable inflation outlook is a key factor enabling BNM to consider further interest rate cuts. A benign inflationary environment means that lowering interest rates is less likely to incite significant price increases, providing the central bank with room to manoeuvre its monetary policy to stimulate economic activity.
Economic Disruptions and Inflation Outlook

Fitch Solutions anticipates a softer inflation trajectory for Malaysia in the current year. This forecast is attributed to the economic disruptions caused by the MCO. While rising global oil prices could potentially mitigate some of these inflationary pressures, the overall impact of the MCO on economic activity is expected to keep inflation subdued.
Fiscal Constraints and Political Uncertainty

Malaysia's rising debt level, which reached 61 per cent in the third quarter of the previous year, suggests that the government may need to consider additional fiscal injections to support the economy. However, the article also highlights significant political uncertainty anticipated in the second half of 2021, including the possibility of a general election. This political landscape could make a coordinated fiscal and monetary response to any economic shocks less probable.

Reading history

Hide →

This history is cleared when the page is closed.

Will Bank Negara Malaysia cut interest rates again this year?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends