KUALA LUMPUR: Economists are split on whether Malaysia’s central bank will cut interest rates this week, with a slim majority in a Reuters poll betting on a rate reduction, as policymakers balance the need to support a virus-hit economy with a pick-up in exports.
Bank Negara Malaysia (BNM) is seen easing its overnight policy rate by 25 basis points to a record low of 1.50%, according to seven out of 13 economists polled, having already delivered 125 bps of rate cuts this year.
The remaining six economists expect the central bank to keep interest rates at 1.75%, already a historic low.
Malaysia’s export-reliant economy saw its worst slump ever in the April-June period due to the fallout from the coronavirus pandemic, while unemployment has remained stubbornly high, but exports have started to rebound in the third quarter.
“Even though a pick-up in exports should support manufacturing, the rest of the economy will continue to be under downward pressure,” said Prakash Sakpal, Asia senior economist for ING, who forecast a 25 bps rate cut in the poll.
“Mining, construction and services were the worst-affected in Q2 (second quarter) and will remain so over the rest of the year,” he said, adding that the “elevated” jobless rate was hurting consumer spending.
Malaysia’s exports rose for the second straight month in July, expanding 3.1% from a year earlier on higher shipments of manufactured goods and agricultural commodities.
But other releases have shown the economy still struggling, with unemployment rising to 5.1% in the second quarter and consumer prices continuing to fall in July.
Southeast Asia’s third-largest economy shrank 17.1% in the April-June period, its first contraction since the 2009 global finiancial crisis. BNM last month sharply cut its GDP forecast for 2020, expecting the economy to contract 3.5%-5.5% this year.
The government has also sought to support the economy with fiscal stimulus, rolling out a 260 billion ringgit ($62.44 billion) package in March.
($1 = 4.1640 ringgit)
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