Protect Growth To Avoid Recession

In line with global interest rate trend, Malaysia's central bank cut its key overnight policy rate (OPR) by 25 basis points to 3.25% at its final rate-setting for the year on Monday as a preemptive measure to avoid a severe economic downturn due to the global economic slowdown and credit crunch. This is also to ensure that domestic demand does not decelerate too quickly.

The central bank said the ceiling and floor rates for the OPR are correspondingly reduced to 3.50% and 3.00% respectively, and reduced Statutory Reserve Requirement to 3.5% from 4.0%, with effect from December 1st, 2008. Lowering statutory reserve requirement will lower cost of funds for banks, thus increases liquidity for lending. The rate change is the first since April 2006.

The Central Bank also hinted that there may be more rates reduction going forward, depending upon the state of the economy, particularly in 2009.

Although inflation for the month October was reported to be 7.6%, inflation is expected to come off sharply moving forward. As such, greater focus will be spent on protecting economic growth instead of fighting inflation.

Good news for both consumers and businesses as loan rates are expected to fall!