Malaysia central bank expected to cut rates for first time in five years: Reuters poll
Expectations have shortened from no cut until at least the first half of 2026 in a March poll to one cut pencilled in next quarter in a May poll and now to a move expected on July 9.
The shift in outlook follows a string of soft economic data - economic growth slowed to 4.4% in the first quarter, June inflation fell to a four-year low of 1.2%, and the central bank's May statement flagged mounting downside risks to the outlook.
A slim majority of economists, 17 of 31, in a June 30-July 7 Reuters poll expected Bank Negara Malaysia (BNM) to cut its overnight policy rate (MYINTR=ECI), opens new tab by 25 basis points to 2.75% on Wednesday. The other 14 forecast no change.
It would be the bank's first cut since July 2020.
"While our base case is for a cut, this is a close call, with a high risk of delay to September or November," said Brian Tan, head of non-China EM Asia economics research at Barclays.
"The risk is the central bank prefers to wait for better timing when a rate cut would be more effective in psychologically boosting economic confidence, rather than easing pre-emptively."
A sizeable minority of economists expect policymakers to wait a few more months for greater clarity, particularly on the domestic impact of a sales and service tax (SST) hike that took effect on July 1.
It is not yet clear how that might affect inflation since it applies mainly to selected imported and luxury goods, with essential items remaining zero-rated, so some economists said the central bank was likely to wait and watch.
"BNM may want to see the impact of the recent sales and service tax hike ... and more evidence of a weakening economy before deciding to cut," said Ahmad Nazmi Idrus, head of economics at CGS International Securities.
While median forecasts showed rates would then remain at 2.75% until at least the end of 2026, there was no clear consensus among economists on where rates would be. Estimates for the end of next year ranged from 2.25% to 3.00%.
Malaysia's worsening export performance could also pressure the BNM to cut rates.
Southeast Asian nations will be especially vulnerable to U.S. President Donald Trump's "take it or leave it" tariff offers, expected to be sent out from Monday.
"Data on external demand show the growth wobble is no longer just sentiment but is bleeding into actual production," said Sunny Kim Nguyen, economist at Moody's Analytics. She said U.S. tariffs pose an immediate threat to Malaysia's electronics and machinery exports.
"Taken together, these developments should satisfy the Bank's 'evidence-based' test for additional support which they highlighted in their May statement," she added.
Malaysia's economy was forecast to grow 4.2% this year, slightly below BNM's 4.5%-5.5% projection, and 4.3% in 2026. Inflation was expected to average 1.9% this year and rise to 2.3% next.
(Other stories from the July Reuters global economic poll)
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