KUALA LUMPUR (March 3): Bank Negara Malaysia (BNM) said today its monetary policy committee (MPC) decided to reduce the overnight policy rate (OPR) by 25 basis points to 2.50% to provide a more accommodative monetary environment to support the projected improvement in Malaysia's economic growth amid the global Covid-19 outbreak.
In a statement today, BNM said the ceiling and floor rates of the OPR corridor are correspondingly reduced to 2.75% and 2.25% respectively.
"The reduction in the OPR is intended to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.
"Global economic conditions have weakened in the recent period. The ongoing Covid-19 outbreak has disrupted production and travel activity, especially within the region. This has also led to greater risk aversion, resulting in tighter financial conditions and a resurgence in financial market volatility.
"Downside risks to the global growth outlook have increased, particularly in the near term. However, a number of countries have implemented policy responses. With further anticipated policy measures, these actions are expected to mitigate the economic impact of Covid-19," BNM said.
BNM said today the Malaysian economy grew at a moderate pace of 4.3% in 2019 and looking ahead, growth, particularly in the first quarter of 2020 (1Q2020), will be affected by the Covid-19 outbreak primarily in the tourism-related and manufacturing sectors.
According to BNM, weakness in the agriculture sector is also likely to persist in 1Q2020.
"For 2020, private and public sector activities will be supportive of growth. Household spending is expected to grow at a slower pace amid moderate employment and income growth. Investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors.
"The 2020 economic stimulus package will also provide some support to economic activity. Although domestic growth is expected to gradually improve in the second half of the year, there are key downside risks, mainly stemming from the evolving nature and prolonged impact of the Covid-19 outbreak, and continued weakness in commodity-related sectors," BNM said.
Malaysia's 2020 headline inflation is expected to average higher but remain modest, according to BNM.
BNM said the trajectory of headline inflation will be dependent on global crude oil and commodity prices and the timing of the lifting of the domestic retail fuel price ceilings.
"Underlying inflation is expected to be more moderate amid limited demand pressures despite the continued expansion in economic activity, BNM said.
Today's OPR cut is the second so far this year. On Jan 22, BNM said in a statement that its MPC decided to reduce the OPR to 2.75%. On Nov 5, 2019, the MPC maintained the OPR at 3%, the central bank said then.
The last time the OPR stood at 2.50% was on May 13, 2010 when BNM said it decided to raise the OPR by 25 basis points to 2.50%.
According to BNM records since 2004 till today, the OPR had ranged between 2.00% and 3.50% during the period.
The last time the OPR stood at 3.50% was on Oct 24, 2008 when BNM said it decided to leave the OPR unchanged at 3.50%. On Nov 24, 2008, BNM said it decided to reduce the OPR to 3.25%
The last time the OPR stood at 2.00% was on Feb 24, 2009 when BNM said it decided to reduce the OPR by 50 basis points to 2.00%.
Source: The Edge Markets