Malaysia central bank surprises market by cutting its benchmark rate

KUALA LUMPUR Malaysia’s central bank surprised markets on Wednesday by cutting its key interest rate for the first time in seven years, saying the move would help the country remain on a “steady growth path”.

Bank Negara Malaysia (BNM) cut the overnight policy rate (OPR) by 25 basis points to 3.00 percent.

“Global growth prospects have also become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom,” BNM said.

“International financial markets could also be subject to greater volatility going forward. In this light, global monetary conditions are expected to remain highly accommodative,” it added.

All 13 economists in a Reuters poll had forecast no change to BNM’s key rate. The widely-held view was that there was no strong push factor for any shift in policy now.

Southeast Asia’s third-largest economy has posted five quarters of slowing growth tied to weakness in global crude and commodity prices.

In January, Malaysia revised its 2016 growth projection downwards to 4.0-4.5 percent from 4.0-5.0 percent on expectations of a sustained slump in global crude prices.

The last time the central bank cut the benchmark rate was in February 2009, when it was slashed by 50 basis points to 2.00 percent.

Inflation is not a worry for the central bank. The annual pace was a seven-year high in February, at 4.2 percent, but it slowed the next three months, reaching 2 percent in May, and BNM expects it to trend lower for the rest of the year due to low energy and commodity prices as well as tepid global inflation.

Wednesday’s monetary policy committee meeting was the second chaired by Governor Muhammad Ibrahim, who succeeded longtime chief Zeti Akhtar Aziz on May 1.

(Editing by Richard Borsuk)