KUALA LUMPUR (Reuters) – Malaysia’s central bank is expected to make the biggest cut to its benchmark interest rate since 2009 next week, a Reuters poll showed, to prop up an economy struggling with the effects of the coronavirus pandemic.

Seven out of 10 economists polled saw Bank Negara Malaysia (BNM) cutting its overnight policy rate MYINTR=ECI by 50 basis points to 2%, matching the historic low set in 2009 during the global financial crisis.

One saw a smaller cut of 25 basis points, while two did not expect any change.

Should the central bank cut its key rate by 50 basis points, it would be the single biggest cut since February 2009.

The “unprecedented crisis” posed by the coronavirus pandemic may push BNM to slash its policy rate even further below 2% moving forward in a bid to soften the impact, said Prakash Sakpal, an economist with ING.

“It seems like everything is coming crashing down. The global demand destruction due to pandemic has crushed the global oil price. Domestically, nearly two months of movement restrictions to combat the disease have depressed activity significantly,” Prakash told Reuters over email.

“While GDP growth is poised for a big hit from all this, inflation has already slipped into the negative territory, warranting aggressive policy easing by BNM at the forthcoming meeting.”

Earlier this month, BNM said its current best estimate is for the economy to either shrink by as much as 2% or grow marginally at 0.5% this year due to the coronavirus pandemic, but stressed that “great uncertainty remains”.

The central bank also forecast exports to contract by as much as 8.7% in 2020, as key trading partners struggled with the pandemic.

The government has rolled out a 260 billion ringgit ($60.12 billion) stimulus package to keep the economy afloat as curbs on movement and business to contain the spread of the coronavirus ground activity to a near halt in Southeast Asia’s third-largest economy.

The stimulus measures are expected to widen the fiscal deficit to 4.7% in 2020, wider than the 3.2% projected late last year.

However, BNM may alternatively opt to keep rates unchanged for now as it has already made cuts at its past two reviews and released more banking liquidity by cutting its statutory reserve requirement ratio, according to Kenanga Investment Bank.

“Furthermore, the reason could also be that it may want to observe the impact of large government fiscal stimulus package to support the economy,” Kenanga said in a research note. – REUTERS

Seven ways for businesses to navigate towards new normal

KPMG Malaysia has outlined seven ways for businesses to navigate towards the new normal after the Covid-19 pandemic, which includes shifting towards localisation, a digital push and moving towards a variable cost model, among others.

The first of the seven features outlined in KPMG’s post MCO reset report, is the shift towards localisation where supply chains for essential commodities and sectors deemed strategically important are localised.

KPMG notes supply chain disruption has brought to light immediate and tangible impacts of black swan events.

This, coupled with the geopolitical environment and global recessionary climate, is likely to lead to greater protectionism and risk aversion.

While this presents an opportunity to drive efficiency through digital media, it also highlights the importance of investing in enabling technologies such as data, cloud and cyber security.

The pandemic has proven that cash is king, thus making it the third feature.

KPMG finds that companies over leveraged and living on the edge are in trouble, hence it highlights the importance of being prudent and conserving cash.

The move towards variable cost models in the fourth factor.

“One of the biggest lessons among others is the importance of reducing overall business costs,” it said while adding that one significant way of achieving this is by converting fixed cost to variable costs when feasible.

Building sensing and control tower capabilities is the fifth feature. KPMG added that alternate data can offer quick insights that traditional approaches and tools may not offer.

“For instance, analytics companies are now mining alternative data such as traffic jams, food orders, etc to track the Covid-19 shocks. This trend is expected to pick up,” it added.

Supply chain resilience is the key when it comes to responding to repercussions of unexpected events and to quickly return to the original state of operations or to move a new normal.

The last feature is to build agility, by putting in place mechanisms to respond to unexpected events of the future.

The firm said the current downturn is different from recessions seen in the past.

“This is not just a turn of the business cycle, but a shake-up of the world economic order,” it said.

“While countries and companies attempt to come to terms with the scale of this pandemic, it is evident that we are staring at more permanent, structural changes in the way we live, work and play,” it added.

Hence, business landscape could shift and leverage on these seven ways to navigate towards the new normal through a socially and economically viable path.

Adding that the Covid-19 is a crisis with an uncertain ending, KPMG said the pandemic has introduced new challenges.

“However, what is clear is Covid-19 has introduced new challenges to the business environment which calls for measured, practical and informed approach from political and business leaders,” it said.

On that note, being aware of the new normal will help businesses and economies navigate the post Covid-19 world.  – THE MALAYSIAN INSIGHT