KUALA LUMPUR (July 9): Malaysia’s central bank on Wednesday moved to cut interest rates for the first time in nearly two years to support an economy facing downside risks to its growth. 

The overnight policy rate has been lowered by 25 basis points to 2.75%, Bank Negara Malaysia (BNM) said in a statement. The decision was predicted by about half of the 23 economists polled by Bloomberg while the rest had expected a pause.

“While the domestic economy is on a strong footing, uncertainties surrounding external developments could affect Malaysia’s growth prospects,” BNM said. “The reduction in the OPR is, therefore, a pre-emptive measure aimed at preserving Malaysia’s steady growth path amid moderate inflation prospects.”

The last time BNM moved the OPR was in May 2023, when it was raised by 25 basis points to 3.00%.

Wednesday’s cut follows an earlier measure by BNM to slash the statutory reserve requirement ratio, which stipulates the amount of cash that lenders must keep in reserve, to its lowest in 14 years in a bid to boost liquidity in the banking system.

The government was blindsided on Tuesday when US President Donald Trump announced a 25% import tariff on all Malaysian goods. Trump left the door open to negotiations ahead of a new deadline on Aug 1 and Malaysia has said it will continue to engage the US.

Favourable trade negotiation outcomes could raise Malaysia’s prospects, though “the balance of risks to the growth outlook remains tilted to the downside, stemming mainly from a slower global trade, weaker sentiment, as well as lower-than-expected commodity production”, BNM said.

For now, the latest developments point towards continued growth in Malaysia’s economic activity in the second quarter, underpinned by sustained domestic demand and export growth, the central bank said.

Resilient domestic demand will support growth as domestic-oriented sectors and policy measures support household spending while multi-year private and public projects will sustain investment activities, BNM said.

The central bank drew comfort from moderating inflation in the absence of global cost pressures and excessive domestic demand. “In this environment, the overall impact of the announced and upcoming domestic policy reforms on inflation is expected to be contained,” BNM said.

Read also:
Anwar hails BNM’s OPR cut
Banks cut lending rates after BNM's OPR reduction