KUALA LUMPUR: Bank Negara Malaysia has “ample room” for monetary policy adjustments as the country braces for the impact from the Covid-19 coronavirus outbreak.
Asked whether Bank Negara would reduce its overnight policy rate further in view of the macroeconomic challenges, its governor Datuk Nor Shamsiah Mohd Yunus said the central bank has “ample room” for monetary policy adjustments.
“Our inflation is still low and so, we do have the policy space (to ease monetary policy), ” she said at a press conference on Wednesday to announce Malaysia's economy grew at 3.6% in the fourth quarter of 2019 (4Q 2019) and the slowest since the third quarter of 2009.
The central bank unexpectedly cut its overnight policy rate last month by 25 basis points to 2.75%, the lowest since March 2011.
In a statement issued by Bank Negara, it expects the economy to remain supported by private sector activity in 2020 but concerns are the impact of the Covid-19 in the first quarter.
Bank Negara said the overall impact of the virus on the Malaysian economy will, however, depend on the duration and spread of the outbreak as well as policy responses by authorities.
“For the year as a whole, growth will be supported by household spending, the realisation of approved private investment projects in recent periods, and higher public sector capital spending, ” it said.
Bank Negara said the downside risks to growth include uncertainties in external conditions arising from the ongoing coronavirus outbreak, the various trade negotiations and geopolitical risks, as well as domestic factors, including weakness in the commodities sector and delays in project implementation.
“Thus, two-way capital flows and exchange rate volatility should be expected, ” it said.
As for headline inflation, it was projected to average higher than in 2019, but remain modest.
The trajectory of headline inflation will be dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings.
“Underlying inflation is expected to be broadly stable, reflecting the continued expansion in economic activity and the absence of strong demand pressures, ” it said.
As for the ringgit, Bank Negara said the performance in 2020 would continue to be influenced by external developments.
“While the Phase One trade deal between the US and PR China contributed to an improved outlook on global trade, investor sentiments are also affected by concerns over the recent coronavirus outbreak.
“As a result, the ringgit depreciated by 1.3% against the US dollar this year up to Feb 10, amid weaker sentiments in global financial markets, ” it said.