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 22 Jsn 2009

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Malaysia’s shock rate cut seen hitting banks

Malaysian shares are poised to drop sharply on Thursday after a larger-than-expected rate cut from the central bank showed the Southeast Asian nation was increasingly vulnerable to the global recession, reported Reuters.

Dealers said banking stocks, led by top lenders Maybank and CIMB, would suffer from a sell-off as lower rates will bite into margins although Public Bank with its strong dividend policy might be spared for the time being.

"Many fund mangers held emergency meetings after yesterday's big rate cut and the keyword is sell," said a dealer with an investment bank.

"All this while, Malaysian shares were trading sideways with the perception that the country was relatively insulated from the global slowdown but now the rate cut changes that, foreign shareholdings in the bourse are going to fall."

Malaysia's central bank on Wednesday slashed its key policy rate by a surprise 75 basis points to its lowest level in over 10 years, and is expected to cut rates further in a bid to stave off recession.

Malaysia is playing catch-up with central banks across Asia and globally. Earlier this month South Korea's central bank cut interest rates by 50 basis points to 2.50 percent and Thailand last week cut rates by 75 basis points to 2.0 percent, a four year low.

Bank Negara cut rates at its last meeting in November by a modest 25 basis points and was earlier criticised by many economists for not hiking during an oil-induced price spike that pushed consumer price inflation to near 27-year highs of 8.5 percent last summer.

Malaysia's growth is expected to be pressured by the weakness in exports, which fell in both October and November and are seen falling further. Exports form more than 100 percent of Malaysia's gross domestic product.

The bulk of exports are electronics, and demand has waned due to the economic crisis. Palm and crude oil are the other key exports which have been hit by falling commodities prices.










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