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The Bank Negara Malaysia said it expects economic growth to be stunted in this quarter as tourism and consumer spending take a hit from weaker demand.
"The 2020 economic stimulus package will also provide some support to economic activity," the central bank said in a statement, referring to 3.3 billion ringgit ($780 million) in financing, among other measures, announced last week to help support small and medium sized businesses and encourage investment.
The central bank's decision was widely expected. It followed similar moves by China and Australia. Later Tuesday, central bankers and finance ministers of the Group of Seven major economies were expected to discuss and release a statement on measures to counter the slowdown due to the viral outbreak that began in China.
Malaysia's economy grew at a 4.3% rate in 2019 but has slowed in recent weeks and the central bank will likely need to take further action in coming months, said Alex Holmes of Capital Economics.
"Given Malaysia's close economic links with China through trade and tourism, it is likely to be among the hardest hit by the economic fallout from the coronavirus there," Holmes said in a report.
The rate cut comes at an unsettled time for Malaysia, after former Prime Minister Mahathir Mohamad resigned and then sought to return to power after days of political turmoil. Malaysia's king appointed seasoned politician Muhyiddin Yassin as the new prime minister.