KUALA LUMPUR (March 20): Standard Chartered has cut its 2020 forecast for Malaysia's gross domestic product (GDP) growth to 2.5% from 4.2% as the demand outlook worsens more than expected. 

In an economic alert report yesterday, Standard Chartered said the global spread of Covid-19 and collapse in oil prices will likely undermine local activity. 

"Due to the collapse in oil prices driving fuel prices down, we lower our 2020 inflation forecast to 0.8% from 1.9% previously. 

"While we believe that supply chain disruptions in China should end with the return of the country's productive capacity, the demand hit from the Covid-19 outbreak has not become broader, deeper and more protracted than we earlier envisaged," it said.

It added that given the widening spread of the outbreak, Bank Negara Malaysia (BNM) is expected to cut the overnight policy rate by 25 basis points each in May and July. 

"This would bring the policy rate to 2%, matching the low of the global financial crisis period. 

"The last monetary policy statement in March appeared to be more balanced than outright dovish, suggesting that the central bank is open for further easing but in a dependent manner," Standard Chartered said. 

For 2021, it has revised the consumer price index (CPI) inflation forecast to 2.5% on a modest recovery in global oil prices.