Malaysia's central bank expected to cut interest rates for the first time in five years

Malaysia's central bank is expected to cut its key interest rate for the first time in five years on July 9, according to a slim majority of economists in a Reuters poll. The shift in outlook follows soft economic data, including a slowdown in growth to 4.4% in Q1 and a four-year low of 1.2% June inflation. A 25-basis point cut to 2.75% is forecast, with some economists expecting policymakers to wait for clearer impact from a recent sales and service tax hike.

Malaysia's central bank, Bank Negara Malaysia, is poised to lower its overnight policy rate for the first time in five years, according to a Reuters poll. The expected cut, slated for July 9, is seen as a response to soft economic indicators, including a slowdown in growth and a decline in inflation.

The Reuters poll, conducted among economists, indicates a slim majority expects a 25-basis point reduction to 2.75% [1]. This move comes amidst a series of economic indicators that suggest a need for monetary easing. The first quarter of 2025 saw a slowdown in growth to 4.4%, while inflation hit a four-year low of 1.2% in June [2].

The decision to cut rates is also influenced by the recent sales and service tax hike, which has the potential to impact private consumption. Analysts at HSBC and CIMB have cited the need for preemptive measures to support growth, given the uncertain economic outlook [1].

The central bank's latest data suggests that exports contracted by 1.1% in May, indicating persistent tariff uncertainties and soft global demand [1]. Additionally, the government has already revised its growth target for the year, from 4.5% to 5.5%, reflecting a more cautious outlook.

While the central bank may still delay the rate cut, it is expected that the upcoming second-quarter GDP figures and trade data for June and July will provide additional insights [1]. The decision to cut rates will likely depend on how these indicators evolve and the impact of the recent tax hike on the economy.

References:
[1] https://www.businesstimes.com.sg/international/asean/malaysia-rate-cut-bets-grow-tariff-talks-weigh-outlook
[2] https://tradingeconomics.com/malaysia/interest-rate