Malaysia, Expecting Recovery, May Keep Rate Unchanged
Malaysia’s central bank may refrain from cutting interest rates for a second straight meeting, betting the economy is recovering after contracting last quarter for the first time since 2001.
All 20 economists surveyed by Bloomberg News expect Bank Negara Malaysia to hold its overnight policy rate unchanged at 2 percent in the decision due at 6 p.m. today. The central bank may report tomorrow that gross domestic product shrank 3.9 percent in the first quarter from a year earlier, according to the median estimate of 16 economists.
Asian policy makers, who have slashed borrowing costs and pledged more than $950 billion of stimulus plans, have started saying their economies may be past the worst of the deepest global recession since the Great Depression. Bank of Japan Governor Masaaki Shirakawa said last week the region’s largest economy is improving after a record first-quarter contraction.
“Assuming economic activity picks up as we move forward, Bank Negara will probably not see the need to cut rates further,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “An expected turnaround in global export demand” will support a recovery in the second half of the year, he said.
Malaysia’s 1.5 percentage points of interest-rate cuts since late November and the government’s 67 billion ringgit ($19 billion) of public spending, loan guarantees and other measures should help the economy resume growth in the second half after a “marked contraction” in the first six months, Governor Zeti Akhtar Aziz said May 9.
Stimulus Spending
Zeti refrained from lowering Malaysia’s benchmark interest rate last month after cutting it in the three previous meetings. Prime Minister Najib Razak, whose coalition has lost three of four regional elections this year, has unveiled two stimulus plans and allowed more foreign ownership of banks and services companies to spur growth as exports of Intel Corp. computer chips and IOI Corp payday loan. palm oil tumbled.
Singapore’s government said last week the economy shrank less than initially estimated in the first quarter and the nation may have “hit the bottom” of its worst recession since independence in 1965. Thailand’s central bank unexpectedly kept interest rates on hold last week, and South Korea has left borrowing costs unchanged for three months.
“Right now the assessment is there will be an improvement in the second half of the year, especially in the fourth quarter,” Zeti said in a May 9 interview with Bloomberg Television. “Unless that assessment changes, then the current rate is the appropriate rate.”
‘Resuming Growth’
Malaysia’s ringgit has strengthened 2.6 percent since Bank Negara held rates steady on April 29.
Still, a worse-than-expected slump in exports early this year will force policy makers to lower the country’s full-year economic forecast, Zeti said. Southeast Asia’s third-largest economy will “definitely” shrink more than 1 percent in 2009, Second Finance Minister Ahmad Husni Mohamad Hanadzlah said today. The central bank currently predicts a contraction of 1 percent or growth of that much at best.
“Malaysia’s economy may observe a contraction for the first three quarters of the year before resuming growth in the final quarter,” said Patricia Oh, an economist at TA Securities Holdings Bhd. in Kuala Lumpur. “Should there be anticipation for future economic weakness ahead, there is room for further interest-rate reductions” as inflation eases, she said.
Inflation slowed to a one-year low of 3 percent in April as transport and communications costs fell amid slowing growth. Malaysia’s $187 billion economy grew 0.1 percent in the fourth quarter from a year earlier, the least in seven years.