Bank Negara will not hesitate to step in to provide economic support to the country through monetary tools, says Public Investment Bank Research (PIB Research).
In a research note today, PIB Research said Malaysia was undergoing rapid transition with the new federal government.
"Any adjustment and rebalancing efforts may in one way or another impact the government’s delivery system, potentially causing a dent to the demand side of economy such as private and public investment, especially when the government is committed to reduce wastage and cutting costs.
"As projects like the Kuala Lumpur-Singapore High Speed Rail (HSR) and Mass Rapid Transit 3 (MRT3) had been looked upon to support the investment momentum, the decision to scrap or defer the projects may impact the sector’s performance," it said.
However, PIB Research noted that Bank Negara would also not hesitate to step in at any sign of economic weakness.
It added that the tepid inflation momentum of 1.7 percent in 2018 year-to-date, following the benign global cost factor, gave the central bank comfortable room to intervene in the policy rate, as it could result in competitive real effective interest rate.
“Any policy rate intervention through a cut can spur not only the economy, but also the investing appetite, which is a win-win strategy for all.”
PIB Research said Malaysia was known to be unhesitating and acting ahead of the curve in recent times, as shown during the global credit crisis and the United Kingdom’s withdrawal from the European Union.
On another note, PIB Research said the new Bank Negara governor, Nor Shamsiah Mohd Yunos’s immediate task would be the Fourth Monetary Policy Meeting on July 11 – which would be closely monitored as the central bank was expected to assess the immediate impact of the brewing United States-China trade war.
The research firm said this could be a source of risk as Malaysia is the eighth largest trade partner of the US.
"The secondary impact should be real as well, especially when it can disrupt the supply and revenue chain due to our close trade integration with China and the US," it added.