Malaysia Rate-Cut View Eases as Risks Recede: Decision Guide

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Economists pared back expectations for an interest-rate cut in Malaysia as global uncertainties recede following last week’s U.S.-China trade truce.

All but two of the 26 economists surveyed by Bloomberg expect the benchmark rate to stay at 3% when the policy committee meets Wednesday for the first time this year, with those two forecasting a cut of 25 basis points. That compares with a November survey, when most analysts expected the central bank to start lowering interest rates early in 2020.

Bank Negara Malaysia’s policy meeting comes as other central banks stand pat on signs of stabilizing growth. Japan’s central bank held rates steady Tuesday, and Indonesia is set to keep its policy rate on hold Thursday.

Malaysia’s central bank has kept its policy rate steady since a 25 basis-point cut last May. It moved unexpectedly in November to cut the proportion of funds banks must hold on reserve, a step intended to pump money into the economy.

Here’s what to watch for in the policy statement:

Economic Outlook

The Finance Ministry maintained last week that Malaysia’s economic growth will accelerate to 4.8% this year, from an estimated 4.7% last year. The central bank has forecast 2019 growth in a range of 4.3%-4.8% and said in November it expects to see the “pace sustained going into 2020.”

What Bloomberg’s Economists Say

“Private forecasts suggest Malaysia’s economy will continue to slow in 2020, to 4.3% from 4.5% in 2019. We are more optimistic, seeing stable-to-firmer growth this year. The U.S.-China trade truce should support domestic, as well as foreign, demand. Resilient oil prices should help as well.”

Tamara Mast Henderson, Asean economist

Export Uncertainty

Trade could pick up in 2020 as tensions ease between the U.S. and China. MIDF Research forecasts Malaysia’s exports to grow 1.5% year-on-year in 2020, driven by commodity-based sectors, after contracting toward the end of 2019. Exports declined the most in three years in September, and were down 5.6% in November.

The risk of slower trade this year can’t be ruled out. The U.S. tariff rate on Chinese imports is still considerably higher than it was two years ago, according to Fitch Ratings Ltd. Any impact from the recently concluded “phase one” U.S.-China trade deal will depend on how it’s implemented, Fitch said.

Inflation

Inflation is expected to remain benign in 2020, as the distorting effects of tax changes last year fade. Consumer prices rose 1.0% in December from a year ago and were up 0.7% for the full year, below the 0.9% expected. The government is forecasting inflation of 2% for 2020.

Water tariff adjustments scheduled for this year may increase price pressures, though a targeted petrol subsidy program planned for January, which could have pressured inflation to the upside, was postponed. The labor market also shows signs of softening, while real expenditure growth is unlikely to match last year’s pace, BNP Paribas SA said in a note.

--With assistance from Tomoko Sato.

To contact the reporter on this story: Anisah Shukry in Kuala Lumpur at ashukry2@bloomberg.net

To contact the editors responsible for this story: Yudith Ho at yho35@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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