Bank Negara cuts rate to 2 percent

From Bloomberg:

Feb. 24 (Bloomberg) -- Malaysia’s central bank lowered its benchmark interest rate for a third straight meeting to bolster an economy that policy makers say faces an increasing risk of contracting this year.

Bank Negara Malaysia cut its overnight policy rate to 2 percent and reduced the amount of money lenders need to set aside as reserves, according to a statement today in Kuala Lumpur. The half-point reduction was predicted by 6 of 15 economists surveyed by Bloomberg News.

“The downside risks to the global economic outlook have increased significantly,” the central bank said. “While this has raised the risk of an economic contraction in 2009, the prospects remain intact for an economic recovery once global conditions stabilize.”

Governor Zeti Akhtar Aziz, who cut borrowing costs by the most in more than a decade last month as the global recession deepened, said Feb. 11 the reduction had been “frontloaded.” Reports since then showed inflation eased further in January and exports fell the most in almost seven years in December.

“Given the gloomy outlook for Malaysia, a more assertive and immediate set of policy responses will be required to prevent the economy from slipping into a fully fledged recession,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore, who had expected a half-point cut today.

You heard it here, half a percent cut. They could very well go another half a percent but after that it will be getting dangerously bad for the ringgit. I say the stimulus is a waste of money and will help deplete foreign reserves.