KUALA LUMPUR: After the aggressive interest rate cut last week by a handful of Asian central banks, which surprised the markets, there is a strong expectation that more countries will follow suit in the coming months.
This is because the impact of the US-China trade war, cited as the main reason for the tariff reductions, has been felt by many countries.
Tariff reductions are coming as well, as concerns about inflation are waning after weak oil prices.
Regional markets primarily made money after the US Federal Reserve (Fed) lowered tariffs for the first time in more than a decade. The central banks of India, New Zealand and Thailand shocked markets when they announced rate hikes last Thursday, as well as the central bank of the Philippines on the following day.
Will Bank Negara Malaysia (BNM) follow suit?
Mohd Redza Abdul Rahman, head of MIDF research, believes it is unlikely that BNM will announce a tariff at its next monetary policy meeting on September 12.
If anything, historical events have shown a subsequent rhythm cut tends to occur after a drastic fall in the gross domestic product (GDP), he told The Edge Financial Daily when contacted.
Senior UOB economist Julia Goh expressed a similar view in a recent report, stating that she does not believe BNM will follow with another rate, unless the next second quarter (2Q) to 3Q 2019 GDP data disappoint together with worsening consumer sentiment. and business.
The Malaysian central bank reduced the negotiation policy rate (OPR) in May to 3%, its first reduction since the index's growth by 25 basis points in January 2018.
"I think our economy is still working well and we were ahead of the curve when we cut rates in May," said Mohd Redza. "It was necessary to do this when I was looking at the macro indicators at that time, but more understanding of the uncertainties ahead."
"[Yet] we have seen improvements since the rate cut, with growth in bank system lending still showing large numbers for mortgage and commercial loans in May and June.
"And May's distribution business reached a record value of RM108 billion, with all components; wholesale, retail and vehicle sales showing no signs of weakness.
"This suits private consumption, accounting for more than half of Malaysia's GDP," Mohd Redza added.
However, he warned of weaknesses in manufacturing growth, which could worsen, especially as the remaining $ 300 billion of Chinese Chinese exports are taxed by the United States, including all technological products.
"As we see an improving title on trade surplus [net exports] despite the decline in exports due to weaker manufacturing activities, we need to look deeper into whether this is due to imports which have slowed faster than the rate [at which] exports have weakened, "he noted.
Last Friday the Statistics Department said Malaysia's June Industrial Production Index was up 3.9% on a year-over-year basis. Mohd Redza noted that the manufacturing component grew only 1.2% compared to 3.1% in May, while the electricity component decreased 7.9% in June compared to 2.4% growth in May.
"If the declining demand for E&E (electrical and electronic) products is worsening, we may see a likely impact on private home spending. And it may incite the need for another rate. But we don't think it will happen so soon," he said.
He added that with the expected recovery of the Kebabangan gas field, exports of liquid natural gas should improve. "This will mitigate the decline in factory exports and that is why our GDP numbers will still be good for the rest of 2019," Mohd Redza said.
Dr Donald Hanna, CIMB Group's chief economist, believes that BNM, like other central banks in the region, needs to adjust its policy to reflect changing domestic and international perspectives, adding that the external economic outlook has declined for many countries. , including Malaysia.
"We expect July inflation to slow to 1.2% a year from last month's 1.5%. The combination provides BNM with the rationale and space to cut rates by 25 basis points in the coming months," Hanna said when contacted.
This cut will not be a knee-jerk reaction to the Fed's cut, he said.
"Indeed, the surprise to the Fed's market was the reluctance to cut as aggressively as what the market expected. The BNM cut is likely due to the continued downgrade of the bamboo curtain between the United States and China," Hanna said.
Mohd Afzanizam, Abdul Rashid, chief economist of the Bhd Bank, said that the case for further cuts in the OPR is being strengthened.
In general, he said that BNM was entitled to discontinue the OPR in view of the prevailing economic conditions.
However, he said that the volatility of the US dollar against ringgit may have made the central bank somewhat concerned about its decision.
"The uncertainty over FTSE Russell's upcoming review of Malaysia's govt (government obligation) position in the World Government Bond Index should also not be taken lightly as possible. [a] negative impact on the ringgit.
"It may be best to wait for the final result before BNM decides on its next course," he told The Edge Financial Daily.
"Are we behind the curve? Maybe not. Growth is still pretty decent although the economy could operate slightly below potential, ”he added.
Mohd Afzanizam said whether Malaysia needs another tariff reduction entirely depends on growth rates.
"As mentioned, a disadvantage is risking from the outside [environment] are quite visible. Being an open economy, Malaysia would be susceptible to fluctuations in external demand, ”he said.