Malaysia's central bank sees room to cut rates as GDP growth hits 10-yr low

Kuala Lumpur

MALAYSIA'S central bank sees room to adjust monetary policy again after economic growth slowed to its weakest pace in more than a decade and the nation braces for the impact of the coronavirus on tourism and trade.

Fourth quarter gross domestic product expanded 3.6 per cent from a year ago, the lowest since the third quarter of 2009 and far worse than the 4.1 per cent median estimate in a Bloomberg survey. That brought the full-year growth figure for 2019 to 4.3 per cent , the weakest since the global financial crisis a decade ago, and below the government's initial projection of 4.7 per cent .

Malaysia's central bank surprised economists last month by lowering interest rates by 25 basis points, taking early action to bolster growth as global risks began escalating. Thailand, the Philippines and Sri Lanka soon followed with rate cuts, and economists are betting several more in the region will ease policy this year as the effect of the coronavirus becomes more severe.

"We have ample room" to adjust interest rates, Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus told reporters in Kuala Lumpur at the release of the GDP report. "Our inflation is still low, so we do have that policy space." The benchmark FTSE Bursa Malaysia KLCI Index extended its decline to 0.4 per cent after the data, trading within 2 per cent of what would mark its entry to a bear market.

"Growth momentum has clearly faltered and all else equal, this validates the BNM's recent cut and sets the stage to consider further easing," said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore.

GDP was hit last quarter by supply disruptions: Palm oil production, which makes up 39 per cent of farm output, fell almost 17 per cent from a year ago Natural gas production contracted 2.1 per cent. Crude oil fell 5 per cent. The governor said growth could have been as strong as 4.3 per cent if there were no disruptions to supply.

Tourism and manufacturing in the first quarter will likely be affected by the spread of the coronavirus, though other sectors may help offset the damage, the governor said. The central bank will provide a full-year growth forecast in March.

"One sector may be affected much more but because of the diversified nature of the economy, other sectors will be able to cushion the impact of the coronavirus on selected sectors of the economy," the bank governorsaid. BLOOMBERG