Malaysia Interest Rates Seen Steady Next Year, Hong Leong Says

Malaysia is likely to keep interest rates steady through 2013 as inflation risk deters cuts and the central bank avoids policy shifts that may spur capital inflows, according to the nation’s fourth-biggest banking group.

Consumer-price gains will accelerate when the government trims fuel subsidies to address its budget deficit after a general election that must take place by early 2013, said Geoffrey Ng, Chief Executive Officer at Hong Leong Asset Management Bhd., part of Hong Leong Group. Prices rose 1.3 percent from a year earlier in October and September, the smallest increases since February 2010, official data show.

“Depending on how quickly they pull back subsidies, we will see an inflationary impact and this would make it more difficult for the central bank to want to move interest rates down,” Kuala Lumpur-based Ng, who helps oversee $1.8 billion of assets, said in a Nov. 30 interview. Against this backdrop, Hong Leong favors bank deposits over short-maturity government bonds in Malaysia, he said.

Bank Negara Malaysia has kept its policy rate at 3 percent this year as central banks in Indonesia, the Philippines and Thailand lowered borrowing costs to support their economies. Gross domestic product in Malaysia increased 5.2 percent from a year earlier in the third quarter, compared with growth of 6.2 percent in Indonesia, 7.1 percent in the Philippines and 3 percent in Thailand, official figures show.

Malaysia’s economy will expand 4.5 percent to 5.5 percent in 2013, after growth of as much as 5 percent in 2012, while the budget deficit will narrow to 4 percent of GDP from 4.5 percent, Prime Minister Najib Razak said in a budget speech on Sept. 28.

Of 16 analysts surveyed by Bloomberg, eight predict the central bank’s benchmark interest rate will be the same at end-2013 as it is now. Three forecast an increase of a quarter of a percentage point to 3.25 percent and five said they expect a 3.5 percent rate.

The nation’s banks offer an average 12-month deposit rate of 3.17 percent, higher than the 3.01 percent yield on one-year sovereign bonds, according to data compiled by Bloomberg.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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