Rate cut by other nations depends on state of economy

PETALING JAYA: The US Federal Reserve’s (Fed) move to cut its funds target rate by 50 basis points marks an interest rate easing cycle for the US economy but that is not necessarily so for other global economies.  

Economists said although the Fed cut had a large influence on global growth and inflation outlook, it did not necessarily mean there would be a synchronised easing in other economies. 

RAM Holdings Bhd group chief economist Yeah Kim Leng said a rate cut would depend on the state of a country’s economy and financial market. 

“Nonetheless, it does provide room for other central banks to lower their interest rates without worrying about widening interest rate differentials putting pressure on their exchange rates or triggering an outflow of capital.  

“In the case of Malaysia, although its monetary response flexibility has been enhanced, the current growth and inflation outlook and financial market conditions suggest that an easing is still some time away,” Yeah told StarBiz

Joseph Tan, senior strategist at Singapore-based Fortis Bank, does not expect Malaysia’s central bank to cut its overnight policy rate (OPR) in the near term, given that inflationary pressure was making a comeback with rising oil prices.  

“It’s different for Asian central banks. They have limited room for manoeuvre, given that most are growing at above 5% and are facing inflationary pressure,” he said.  

Yeah concurred, saying that Malaysia’s present interest rate level appeared sustainable and stable based on current growth prospects and the inflation outlook. 

He said unless there were signs of the US economy falling into recession, which would necessitate more Fed rate cuts, he expected Malaysian interest rates to remain stable. 

Malaysia’s inflation accelerated to a six-month high in August as food and cigarette prices rose and a weakening ringgit made imports more expensive. The consumer price index rose 1.9% from a year earlier compared with a 1.6% gain in July.  

Malaysia’s current OPR stands at 3.5%. 

Following the Fed’s cut on Tuesday, Hong Kong cut its key rate, given that its exchange rate is pegged to the greenback. It was the only Asian country to do so. 

The Philippines and Thailand have indicated that they may cut rates in view of a slowdown in their respective economies and relatively high current key rates. 

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