KUALA LUMPUR (May 5): Malaysia is set to cut its benchmark interest rate by a bigger-than-usual 50 basis points on Tuesday to help cushion the economy just as the government begins relaxing restrictions put in place to contain the coronavirus pandemic.

The central bank will lower the overnight policy rate to 2%, the lowest level since 2010, from 2.5%, according to 14 of 20 economists surveyed by Bloomberg. That would be the third reduction in a row and the biggest in more than a decade. Five analysts see a 25-basis-point easing and one predicts no change.

Bank Negara Malaysias rate decision comes a day after almost the entire economy was allowed to reopen, easing a lockdown that has cost the country an estimated RM63 billion, according to Prime Minister Tan Sri Muhyiddin Yassin. Still, some states are deferring the move as new infections started to rebound over the weekend. Malaysia is set to fully lift its movement restrictions on May 12, almost two months after it was imposed.

The central bank has already unveiled a slew of measures to boost the economy, including a six-month loan moratorium and a financing guarantee program for small businesses.

Question

1. On 16th March 2020, the Malaysian Prime Minister Muhyiddin Yassin made a televised speech and announced a Movement Control Order (MCO) for Malaysia, as a preventive measure in response to the COVID-19 pandemic in the country. Explain how cut interest rate can help cushion the economy?
2. From your knowledge and what you have learned in the class, what other methods that can be use of Central Bank to boost economy for recovery under Monetary Policy tools.