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Malaysia Central Bank Unexpectedly Cuts Reserve Requirement

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Malaysia's central bank lowered its statutory reserve requirement ratio in an unexpected move on Friday, to improve liquidity in the domestic financial market.

Bank Negara Malaysia decided to reduce the SRR to 3.00 percent from 3.50 percent, effective from November 16.

"This will continue to support the efficient functioning of the domestic financial markets and facilitate effective liquidity management by the banking institutions," the bank said.

The BNM added that SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy.

The central bank had left its key interest rate unchanged for a third policy session in a row, early this week. The overnight policy rate remains at 3.00 percent.

The previous change in the rate was in May, which was the first cut since July 2016.

Prakash Sakpal, an economist at ING, said the SRR cut is viewed as a clear precursor to the deteriorating growth outlook.

Today's move raises confidence in forecasts of an additional 50 basis point interest rate cut in the current easing cycle, Sakpal added. The move will happen in the first quarter of 2020.

The third quarter GDP data is due on November 15. The economy had expanded 4.9 percent in the second quarter.

The central bank expects growth to come in the range of 4.3-4.8 percent this year.

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