Malaysia rate cut bets grow as tariff talks weigh on outlook
PETALING JAYA : Expectations are growing for Malaysia's central bank to cut interest rates at its policy meeting on July 9, which is also the deadline for countries to reach trade deals with the US to avert swinging tariffs.
Bank Negara Malaysia (BNM) is expected to cut the overnight policy rate (OPR) next week by 25 basis points to 2.75% to preemptively support growth, analysts at HSBC Holdings Plc and CIMB Group Holdings Bhd said in separate reports.
Traders are pricing in a 40% chance of a rate cut within the next three months, according to swaps data compiled by Bloomberg.
'We expect the cut to materialise largely as a means of pre-empting a potential slowdown in domestic demand,' analysts Yun Liu and Madhurima Nag from HSBC wrote in a June 25 note.
Private consumption may be impacted by the expansion of the sales and service tax and the government's plans to cut subsidies for the country's cheapest and most popular gasoline, RON95, according to the HSBC analysts.
'The impact of the latter should be limited, however, as authorities aim to keep the majority of the population shielded,' they added.
The government has already flagged its plans to revise down its 4.5%-5.5% growth target this year.
Malaysia's exports contracted by 1.1% in May, with CIMB's Azri Azhar and Michelle Chia citing that decline as evidence of persistent tariff uncertainties, soft global demand and weakening trade sentiment.
It's unclear when Malaysia will reach a trade agreement with the US.
Southeast Asian neighbour Vietnam has reached an accord in which its goods will be subject to a 20% tariff, according to US President Donald Trump.
Credit momentum is also showing signs of broad-based moderation, while signs of softness in private consumption are becoming more evident, the CIMB analysts wrote in a July 2 note.
'These all point to a cut in borrowing costs at the July 9 meeting,' they said.
To be sure, the central bank may still delay any move. This would imply that additional data may be required, namely the advance gross domestic product figures for the second quarter and trade figures for June and July, according to CIMB.
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