Malaysia's central bank, seeing more clouds over the global economy after Britain's Brexit vote, surprised markets by cutting its key interest rate for the first time in seven years in a bid to keep the country on a "steady growth path". Bank Negara Malaysia (BNM) on Wednesday cut the overnight policy rate (OPR), steady since July 2014, by 25 basis points to 3.00 percent.
Global growth prospects have "become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom," the central bank said. "International financial markets could also be subject to greater volatility going forward. In this light, global monetary conditions are expected to remain highly accommodative," it added. The ringgit initially weakened slightly on the news, then turned firmer, rising 0.3 percent to 3.9700 per dollar. For the year, the ringgit has been the region's best-performing currency, strengthened 8.2 percent against the dollar. Most government bond prices rose with the 10-year yield down to 3.637 percent, the lowest since November 2013. Malaysian stocks rose fractionally after the cut.
All 13 economists in a Reuters poll had forecast no change to BNM's key rate as they did not see a strong push factor for a policy shift now. "We're surprised in terms of the timing," said Euben Paracuelles, a Nomura economist in Singapore. "We expected a cut in either late Q3 or early Q4.