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Malaysia keeps rates stable, cuts reserve ratio

by ChemOrbis Editorial Team -
  • 22/01/2016 (18:02)
According to media reports, the Malaysian central bank kept its interest rates unchanged in line with expectations while cutting the statutory reserve-requirement ratio on January 21. The bank held the overnight policy rate at 3.25% while reporting that the statutory reserve-requirement ratio will be reduced to 3.5% from 4% as of February 1.

Some economists commented that the depreciating ringgit and stronger inflation rate make it difficult to make any adjustments to it benchmark interest rates. The ringgit posted the steepest decline of any emerging Asian currency against the dollar last year and lower crude oil prices are also dragging down Malaysia’s economy. According to the government, the country is losing around 300 million ringgit for every $1 per barrel drop in the price of oil.

Prime Minister Najib Razak is expected to revise growth forecasts, reiterating his commitment in January to cut the deficit this year. The Malaysian economy was forecast to grow 4% to 5% in 2016 following an estimated growth rate of 5.5% in 2015. The inflation rate, meanwhile, is expected to stand between 2% and 3% this year.

Previously, Moody’s Investors Service downgraded Malaysia’s credit-rating outlook to stable from positive due to large capital outflows, a lower current account surplus, a sharp depreciation in the local currency and falling reserves. Meanwhile, two other major credit agencies- Standard & Poor’s and Fitch Ratings- also assigned Malaysia an A3 credit rating, the fourth-lowest investment grade.
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