BNM, central banks may reduce rates to support growth

KUALA LUMPUR: Bank Negara Malaysia (BNM) and other central banks around the world have been projected by analysts to potentially reduce rates in a move to support growth.

This comes after the US Federal Reserve left its key interest rate unchanged in a range of 2.25 per cent to 2.5 per cent this week.

According to AmInvestment Bank Bhd (AmInvestment Bank), key global central banks em barking on a more conservative approach in relation to their monetary policy tightening approach provides a lot of room for other central banks to follow suite.

“With global economic outlook expected to moderate coupled with a lack of inflationary pressure, we can now expect central banks around the world to potentially reduce rates in a move to support growth.

“These include BNM where we expect a 25 basis points (bps) cut in the second half of 2019 (2H19), most likely in July,” the research firm said.

APart from keeping the interest rate unchanged, the Fed also said it will stop shrinking its bond portfolio in September, a step that should help hold down long-term interest rates.

“The Fed's move signals there will be no major increases in borrowing rates for both consumers and businesses,” AmInvestment Bank added.

“It now projects one rate hike in 2020 and none in 2021.”

It went on to believe the shift by the Fed towards a more handsoff approach and away from a steady policy tightening shows the central bank is over with its raising rates for now and act to support rather than restrain the economy.

The research firm further noted that though the US economy is on a firm footing, it faces risks from slowing growth and trade conflicts.

“Thus, the Fed lowered its 2019 gross domestic product (GDP) outlook to 2.1 per cent from the previous projection of 2.3 per cent.”

AmInvestment Bank reiterated its view that the Fed will maintain the current policy rate in 2019.

“Though the economy is on a firm footing, it faces risks from slowing growth and trade conflicts. So, room for one rate hike during the year has been lowered to five per cent from 30 per cent previously.”

“In fact, we are looking at the possibilities for the Fed to institute a rate cut in the fourth quarter of 2019 (4Q19) or 1Q20 should the potential incoming data becomes softer, pointing towards a slower economy.”