More interest rate cuts this year

By IZWAN IDRIS

PETALING JAYA: Asian central banks, including Malaysia’s, are expected to further cut interest rates this year, as the region’s export-reliant economies struggle to cope with falling demand from recession-hit US and Europe, analysts say.

“Aggressive rate cutting is expected to stay in 2009 for several Asia-Pacific countries excluding Japan, in order to cushion the impact of a global economic slump,’’ Inter-Pacific Research said in its latest report.

Asian central banks embarked on hefty interest rate cuts in the second half of 2008 when the global economic crisis widened.

Inter-Pacific and OSK Research see further interest rate cuts in Malaysia this year that will be bring down the country’s benchmark overnight policy rate to between 2% and 2.25%.

Bank Negara slashed its key lending rate by 75 basis points to 2.5% on Jan 21. This was on top on a 25-basis-point cut on Nov 24.

“Some Asia-Pacific countries may adopt a weak currency policy like Singapore to cushion its recession-hit economy and keep track with the US Fed’s quantitive easing monetary policy,’’ Inter-Pacific said, adding that China and Malaysia “will strive to maintain a steady currency against the US dollar.’’

Lower interest rates will not only spur domestic lending, but will also weaken the local currency against the US dollar.

A weak currency is positive for exporters, as this will make their products more competitive overseas.

The ringgit hovered at about 3.61 against the US dollar yesterday.

It had fallen about 10% against the greenback over the past six months.

Fitch Ratings earlier this week lowered its oulook on the ringgit from “stable” to “negative,” citing among others, the country’s fiscal weakness.

Despite the rate cuts, banks expectslower loan growth this year.

Bumiputra-Commerce Holdings Bhd said on Tuesday that its loan growth this year would be substantially lower than in 2008.

CIMB Research expects loan growth to be around 1% or 2% in 2009