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Economy

Malaysia central bank cuts rate to record low to offset COVID pain

Policy board takes action at fourth straight meeting, dropping rate to 1.75%

Malaysia's central bank has been cutting rates to support the ailing economy.   © Reuters

KUALA LUMPUR -- Malaysia's central bank on Tuesday slashed its key interest rate to a record low, attempting to cushion the negative impact of the coronavirus pandemic.

Bank Negara Malaysia's policy committee, in a statement, said it decided to cut the overnight policy rate by 25 basis points to 1.75%. This marks the bank's fourth consecutive rate cut since Jan. 22.

"The reduction in the OPR provides additional policy stimulus to accelerate the pace of economic recovery," the bank said. "The monetary policy committee will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth."

The bank added that it "will continue to utilize its policy levers as appropriate to create enabling conditions for a sustainable economic recovery."

The OPR of 2.00% announced in May was already the lowest in a decade, dating back to the aftermath of the global financial crisis.

The Malaysian economy has taken a turn for the worse this year, no thanks to COVID-19, which shut down business activity for almost three months. The country eked out 0.7% gross domestic product growth in the first quarter, and the government is bracing for a contraction in the second.

The unemployment rate is expected to swell to 5.5% -- the equivalent of 860,000 people -- by year-end.

Prime Minister Muhyiddin Yassin's government has announced around $69.2 billion worth of stimulus plans, which are estimated to double the fiscal deficit to 6% based on a $10.5 billion direct injection from the public coffers.

The central bank had been expected to try to spur Southeast Asia's third-largest economy through the devastating consequences of the pandemic. In a Reuters poll of 12 economists before the decision, seven had predicted a rate cut by at least 25 basis points.

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