By Massita Ahmad
KUALA LUMPUR, Nov 24 (Bernama) -- After months of anticipation and expectations from the market, the central bank finally reduced interest rate Monday amid a gloomy outlook for the global economy.
The decision by Bank Negara Malaysia to cut the Overnight Policy Rate to 3.25 percent from 3.50 percent was already expected by the market months ago, and while some persisted that there would be a cut today, others had given up on seeing a reduction.
The reduction in the interest rate shows that it is quite obvious that the government is anticipating a slowdown in economy for the coming years, said Datuk Muhammad Salleh Majid.
By reducing interest rate, it would help spur economic activities as cost of doing business will get lower, the former president of the then Kuala Lumpur Stock Exchange, now Bursa Malaysia, told Bernama in a telephone interview Monday.
Salleh is a Principal Fellow with the Faculty of Economics and Management, Universiti Kebangsaan Malaysia.
He said if the reduction brings no response in the economy, the central bank may likely consider reducing it further, but it would not be so soon.
He pointed out that the central bank took a long time before deciding on today's reduction.
Maybe there would be further reduction if there is a need to generate economic activity as the US interest rate is at one percent but still not helping to curb the increasing rate of unemployment, he said.
He said there is talks that US may reduce interest rate up to zero percent.
However, he pointed out that unemployment was not an issue in Malaysia.
The country's expected four percent jobless rate this year and next year is still considered manageable, he added.
The cut in the OPR was widely expected after the inflation rate in October eased to 7.6 percent, down from 8.2 percent in September.
Meanwhile, a forex dealer said the cut in interest rate will put the ringgit under pressure against the US dollar.
The ringgit is already weak, and with the cut it is expected to weaken further to the 3.70 - 3.80 range against the dollar by year-end, he said.
The ringgit closed at 3.6275/6305 against the dollar today.
Among those who were strongly anticipating a cut in the OPR today was ECM Libra Investment Research.
In a comment early this morning, ECM Libra Investment Research said there was little reason for Bank Negara not to slash the OPR to moderate the impending slowdown in the Malaysian economy.
Based on the Consumer Price Index for October, it could be safely said that the inflationary pressure in the domestic economy is no longer a concern for Bank Negara, it said in its research report released before BNM's meeting.
The fact that the Government significantly cut its forecast of the Malaysian economic growth for 2009 from 5.4 percent to 3.5 percent implies that there is now a strong reason for Bank Negara to slash the OPR, it said.
Among those who differed, Kenanga Research, in its Economic Viewpoint this morning said it expected the rate to remain unchanged for the year as a move to stabilise the ringgit's downward trend. It said the ringgit's slide could be one of the main reasons that may curtail the central bank from cutting the OPR.
OSK Research also shared the view, saying that a cut in the OPR amid the present volatile time may trigger additional unfavourable issues such as driving up demand-pull inflation, further depreciation of the ringgit against the US dollar and loan defaults amid a slower economic expansion.
However, it did point out that the easing in inflation did provide more room for the central bank to loosen its monetary policy.
-- BERNAMA
KUALA LUMPUR, Nov 24 (Bernama) -- After months of anticipation and expectations from the market, the central bank finally reduced interest rate Monday amid a gloomy outlook for the global economy.
The decision by Bank Negara Malaysia to cut the Overnight Policy Rate to 3.25 percent from 3.50 percent was already expected by the market months ago, and while some persisted that there would be a cut today, others had given up on seeing a reduction.
The reduction in the interest rate shows that it is quite obvious that the government is anticipating a slowdown in economy for the coming years, said Datuk Muhammad Salleh Majid.
By reducing interest rate, it would help spur economic activities as cost of doing business will get lower, the former president of the then Kuala Lumpur Stock Exchange, now Bursa Malaysia, told Bernama in a telephone interview Monday.
Salleh is a Principal Fellow with the Faculty of Economics and Management, Universiti Kebangsaan Malaysia.
He said if the reduction brings no response in the economy, the central bank may likely consider reducing it further, but it would not be so soon.
He pointed out that the central bank took a long time before deciding on today's reduction.
Maybe there would be further reduction if there is a need to generate economic activity as the US interest rate is at one percent but still not helping to curb the increasing rate of unemployment, he said.
He said there is talks that US may reduce interest rate up to zero percent.
However, he pointed out that unemployment was not an issue in Malaysia.
The country's expected four percent jobless rate this year and next year is still considered manageable, he added.
The cut in the OPR was widely expected after the inflation rate in October eased to 7.6 percent, down from 8.2 percent in September.
Meanwhile, a forex dealer said the cut in interest rate will put the ringgit under pressure against the US dollar.
The ringgit is already weak, and with the cut it is expected to weaken further to the 3.70 - 3.80 range against the dollar by year-end, he said.
The ringgit closed at 3.6275/6305 against the dollar today.
Among those who were strongly anticipating a cut in the OPR today was ECM Libra Investment Research.
In a comment early this morning, ECM Libra Investment Research said there was little reason for Bank Negara not to slash the OPR to moderate the impending slowdown in the Malaysian economy.
Based on the Consumer Price Index for October, it could be safely said that the inflationary pressure in the domestic economy is no longer a concern for Bank Negara, it said in its research report released before BNM's meeting.
The fact that the Government significantly cut its forecast of the Malaysian economic growth for 2009 from 5.4 percent to 3.5 percent implies that there is now a strong reason for Bank Negara to slash the OPR, it said.
Among those who differed, Kenanga Research, in its Economic Viewpoint this morning said it expected the rate to remain unchanged for the year as a move to stabilise the ringgit's downward trend. It said the ringgit's slide could be one of the main reasons that may curtail the central bank from cutting the OPR.
OSK Research also shared the view, saying that a cut in the OPR amid the present volatile time may trigger additional unfavourable issues such as driving up demand-pull inflation, further depreciation of the ringgit against the US dollar and loan defaults amid a slower economic expansion.
However, it did point out that the easing in inflation did provide more room for the central bank to loosen its monetary policy.
-- BERNAMA
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