Malaysia's central bank Monday reduced its key overnight policy rate _ used by banks to set lending rates _ by 25 basis points to 3.25 percent in a bid to stimulate spending and boost the economy.
The central bank, known as Bank Negara, said the global financial crisis has hit the Malaysian economy as well, and there are indications of slower private sector activity amid softening of the labor market.
"Under these conditions, sustaining domestic demand is key to ensuring that growth in 2009 remains positive," it said in a statement to justify the reduction.
The rate had remained unchanged since April 2006 when it was raised to 3.5 percent. In lowering the interest rate, Malaysia is following the example of other countries that have not only made it easier for people and businesses to borrow from banks but also injected huge amounts of money into the system to prop up their economies.
Meanwhile, Bank Negara said inflation has begun to ease from its peak in the third quarter of 2008, largely because of the falling crude oil prices.
Given the heightened threat to economic growth and falling inflation, the reduction in the overnight policy rate "was a pre-emptive measure to provide a more accommodative monetary environment," it said.
The Malaysian Institute of Economic Research, an influential private think tank, has cut its 2009 economic growth forecast to 3.4 percent _ much lower than its earlier forecast of 5 percent and the government's current 5.4 percent.
Other analysts are predicting even lower growth, and possibly a recession if the U.S. economy tumbles further.
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