Malaysia’s central bank hints at rate cuts

Malaysia’s central bank (BNM) today dropped its clearest hint yet that interest rate cuts are on the way after it lowered its growth forecasts for this year and pledged that monetary policy would be supportive. In its annual report, BNM cut its GDP growth forecast for this year from 4.9% to 4.8-4.3%, while also saying that growth would probably come in “at the lower end of the target range” due to weak global demand and trade tensions. Our forecast is for growth to slow to 4.0% in 2019, with weak global demand and tighter fiscal policy set to drag heavily on the economy. The central bank also said that while rate decisions would be data dependent, “the thrust of monetary policy in 2019 is to remain accommodative”. The shift in BNM’s stance supports our view that interest rates in Malaysia will be cut this year, most likely in the third quarter. The consensus and financial markets are both expecting rates to be left unchanged.