Published January 23, 2009

Analysts predict more rate cuts in Malaysia

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) A second, bigger-than-expected interest rate cut by Malaysia's central bank highlights a rapidly weakening economy, analysts said yesterday, predicting further rate reductions to avert a recession this year.

Bank Negara Malaysia late Wednesday slashed its key overnight policy rate - used by banks to set lending rates - by 75 basis points to 2.5 per cent. The cut was the biggest in a decade and came just two months after the policy rate was lowered by a quarter-point to 3.25 per cent.

'The move was certainly unexpected, with market expectations of a 25-50 basis points cut, andj could possibly point to a rapidly weakening economic environment,' ECM Libra investment research said in a report.

The government expects 2009 growth to drop to 3.5 per cent, from 5 per cent last year. But most analysts said this forecast was too ambitious. AmResearch said the rate cut was the sharpest reduction since 1998 and would boost lending. It will also help prevent a sharp slowdown in private consumption as it raises the disposable income of consumers by lowering their monthly loan repayments, it said.

However, it predicted the economy to grow only by 0-0.5 per cent this year, with downside risks including a slower US recovery, volatile commodity prices and any geopolitical crisis.

'We think there will be a further cut in interest rates of another 50 basis points before the year-end because the macro-economic numbers are quite weak,' said AmResearch chief Benny Chew.

Kenanga Investment Bank and AmResearch expect the government to introduce a second stimulus package worth up to RM10 billion (S$4.17 billion) to spur growth. The government had earlier said it would inject RM7 billion into the economy this year.

Meanwhile, bourse operator Bursa Malaysia said late Wednesday it would sharply cut the number of companies in its main share index - to be renamed FTSE Bursa Malaysia KLCI from July 6 - to 30 from 100 as part of efforts to boost flagging trade. The market plunged 39 per cent last year. -- AP