Bank Negara Malaysia (BNM) will likely reduce the key interest rate for the second time in late 2019 or early 2020 if the country’s economic progression remains weak, according to AmBank Research. In a research note on 8 May, AmBank said there is a 40% chance of a second rate cut as uncertainties heightened in the domestic and global environment.
“Though our base case suggests for only one rate cut by July 2019, we have factored in a 40% chance of a second rate cut later in 2019 or early 2020 should the potential incoming data remain weak."
“Much will depend on the severity of the downside risks to growth from the heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors,” it said.
The research house said the country’s GDP growth for the first quarter of 2019 (1Q19) is expected to remain weak due to the external headwinds.
“Though there is some room for GDP in 1Q19 to reach 4.5%, more conservatively, it could be reading around 3.8% to 4.2%."
The GDP projection could dip below the central bank’s forecast between 4.3% and 4.7% and the government’s projection of 4.9% to as low as 4%.
Recently, BNM tightened the Overnight Policy Rate (OPR) to 3%, the first revision in more than a year.