Bank Negara Malaysia says there is “ample room” for interest rate adjustment after Malaysia posts its slowest economic growth in a decade. Pix by Bernama

KUALA LUMPUR: Bank Negara Malaysia says there is “ample room” for interest rate adjustment after Malaysia posts its slowest economic growth in a decade.

Bank Negara governor Datuk Nor Shamsiah Mohd Yunus hinted at another cut in key Overnight Policy Rate (OPR) following the 25 basis point reduction to 2.75 per cent last month, the lowest point since March 2011.

Prior to last month, the OPR was trimmed to three per cent from 3.25 per cent in May last year.

“We have ample room, inflation is still low," Shamsiah said at a press conference on Malaysia’s gross domestic product growth (GDP) here yesterday.

The country’s economy expanded 3.6 per cent in the fourth quarter and 4.3 per cent for the full-year, down from the 4.7 per cent growth in 2018.

Shamsiah said this was the slowest pace since the global financial crisis in 2009.

The central bank attributed this to lower output of palm oil, crude oil and natural gas, and a fall in exports amid the US-China trade war.

Analysts expect another rate cut as Bank Negara steps in further to help boost the economy. This could happen as early as March 3 at its Monetary Policy Committee meeting.

OCBC Bank economist Wellian Wiranto said having surprised the market with its “pre-emptive” cut last month, there was a distinct possibility for Bank Negara to cut rate again, and soon.

This would be especially so if the commodities production did not pick up, he added.

“Needless to say, much will depend on how the coronavirus outbreak develops as well, be it contagion of the viral sorts or the economic variety,” Wellian said in a report today.

He also said that while Bank Negara may review its 2020 GDP forecast, the central bank would not revise upward its current 4.3-4.8 per cent forecast.

US investment bank J.P. Morgan said the macroeconomic fallout from the coronavirus outbreak had raised the bias for policy easing amid ongoing fiscal consolidation efforts.

“Thus, we continue to expect a 25bp policy easing in the second quarter of 2020 to address these growth concerns,” it added.

Meanwhile, banking stocks took a hit after Bank Negara hinted at a further rate cut.

An OPR cut is not positive for banks as it will hit their margins.

Bursa Malaysia’s Financial Service index was down 297.4 points, or 1.99 per cent, headlined by Public Bank Bhd and CIMB Group Holdings Bhd as the top losers.

Public Bank dropped 52 sen or 2.84 per cent to RM17.78, while CIMB Group fell by 13 sen or 2.56 per cent to RM4.95 yesterday.