Protecting economic resilience: A bold move by Malaysia

With half of the world on lockdown today amid the coronavirus (COVID-19) pandemic, billions around the globe are facing unprecedented restrictions. These restrictions affect not only the everyday life of human beings, but it also severely affects the economy. With the disruption on production and travel activities, the downside risks to the outlook on global growth has increased significantly.

Central banks around the globe have thus introduced various measures to support individuals and companies, in managing the impact caused by the outbreak. 

On 25 March 2020, Bank Negara Malaysia (“BNM”) announced a number of regulatory and supervisory measures to support individuals, SMEs and corporations in managing the COVID-19 outbreak impact. Prior to these initiatives, BNM has already been taking proactive measures via monetary policy to curb the economic impact of COVID-19. The Statutory Reserve Requirement (SRR) Ratio was lowered by 100 bps from 3.00% to 2.00% on 20 March 2020, while the Overnight Policy Rate (OPR) was reduced, for the second time this year, by 25 bps from 2.75% to 2.50% on 3 March 2020. 

In comparison to our neighbors, BNM’s response is viewed as rather bold and pre-emptive. We are also the first country in this region to provide a 6-month moratorium to all individuals and SMEs on most loan facilities. Additional measures were also announced by BNM on 27 March 2020. This focused on the SME segment via the enhancement and increased allocation of financing facilities under the BNM Fund for SMEs. Policyholders and takaful participants were also not left out, with the introduction of relief measures such as the deferment of payment of life insurance premiums and family takaful contributions.

In contrast, other central banks in the region have adopted softer approaches such as issuing reminders to financial institutions to have in place control measures to manage the impact of the outbreak, and welcoming initiatives by banks to voluntarily provide relief measures to their customers.

These rigorous measures are seen to be in foresight, considering the upcoming economic contraction in Malaysia as announced in the BNM Economic and Monetary Review 2019 on 3 April 2020. The outlook on the Malaysian economy will be exceptionally challenging, with a projected GDP growth of between -2.0% and +0.5% in 2020. This is backed by the weakened global demand, supply chain disruptions and COVID-19 containment measures both locally and abroad. 

The pre-emptive measures announced last week to curb the impact of the COVID-19 outbreak, coupled with the changes in monetary policy over the past quarter, is a clear signal on BNM’s stance to resiliently weather this storm and support the economy during these unprecedented times.

By Justin Ong, FSI Financial and Regulatory Risk Leader of Deloitte Malaysia.