This article first appeared in The Edge Malaysia Weekly on January 27, 2020 - February 2, 2020

Bank Negara Malaysia’s move to cut interest rates by 25 basis points may have surprised some analysts but it was actually overdue.

The central bank has been taking a very cautious stance on monetary policy. Indeed, Bank Negara has always been considered one of the region’s more conservative banks.

Striking a balance between economic growth and inflation is no easy task and often, central banks prefer to err on the side of caution, given that runaway inflation is their greatest fear.

But the fact is, inflation has been fairly muted in recent years and the reasons behind the rising cost of living are more complex than just the price of goods and services.

Risks today slant towards a slowing economy and lower investments and business expansion. This means that fewer jobs will be created, stifling the rise in incomes and leading eventually to cutbacks in consumer spending.

We believe that Bank Negara has room to ease its monetary policy further by cutting the overnight policy rate by another 50bps to 2.25% over the next six to nine months.

The economy is certainly in need of a significant boost.

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