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Capital Economics: Malaysia To Cut Interest Rates Soon

Malaysia's central bank is likely to cut interest rates further soon as growth is set to slow in the second half of the year, Capital Economics said Tuesday.

The Bank Negara Malaysia left its key interest rate unchanged at 3 percent on Tuesday, in line with economists' expectations, after slashing it by a quarter-point in May due to several downside risks.

The reduction in May was the first cut since July 2016. The bank had hiked the rate by 25 basis points in January 2018.

The bank has kept the door open to further easing given the poor outlook for the economy and the weaker outlook for exports due to a slowing global economy, Capital Economics economist Gareth Leather said.

The economist also expects revenues from the oil sector to drop as commodity prices are likely to decline further over the coming year.

Capital Economics expects Malaysia's economic growth to slow to just 4 percent this year from 4.7 percent in 2018.

The BNM left the growth forecast for this year unchanged at 4.3-4.8 percent, while stressing that downside risks to the economy are rising.

Meanwhile, inflation is expected to pick up in coming months as the dampening effect of last year's GST reduction fades. However, price growth is forecast to remain modest around 1 percent in the second half of the year, Leather said.

"We are sticking with our forecast that interest rates will be cut by a further 25bp later this year, most likely at the BNM's next meeting in September," the economist said.

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