Economy in Malaysia Likely Bottomed

Bank Negara (BNM) Maintained the Overnight Policy Rate (OPR) at 2.0%; In Line with Our Forecast – BNM left the OPR unchanged today at 2.0%, citing that the worst maybe over for the domestic economy and a recovery is expected moving into the second half of 2009. This is in line with our view first stated on 25 March. Market consensus was expecting a 25bps cut to 1.75%.

 Economy Likely Bottomed; Current Monetary Conditions and Fiscal Policy Stimuli Assessed to be Sufficient For Now – Consistent with Gov Zeti's earlier reiterations that overly low interest rates are not constructive and that current monetary conditions are sufficiently accommodative, BNM's decision to pause also factored in expectations that the economy has bottomed as we had earlier pointed out. Fiscal stimulus measures adopted in Nov last year and Mar this year, the frontloaded 150bps cuts in policy rates, coupled with stabilizing global economic conditions were deemed to be sufficient to help the economy recover in 2H09.