Malaysia Joins Neighbors in Holding Key Rate as Inflation Eases

Malaysia’s central bank left interest rates unchanged for a 10th straight meeting, joining neighbors in keeping borrowing costs unchanged as economic growth and slowing inflation eased the need for stimulus.

Bank Negara Malaysia maintained the benchmark overnight policy rate at 3 percent, the central bank said in a statement in Kuala Lumpur today. The decision was predicted by all 22 economists surveyed by Bloomberg News.

Malaysia’s growth has exceeded 5 percent in the five quarters through September, underscoring the central bank’s decision to keep rates unchanged since July 2011 as Prime Minister Najib Razak bolsters spending ahead of elections that must be held before the end of June. Inflationary pressures may accelerate in the second half of 2013 fuelled by growth, and the central bank may raise borrowing costs to prevent financial imbalances, said HSBC Holdings Plc economist Lim Su Sian.

“They will start to look at upward normalization of the policy rate at some point later this year, probably in the second half,” Lim, based in Singapore, said before the report. The central bank “will be keeping a close eye on the kind of imbalances that might be building up if they keep rates too low for too long,” she said, citing credit growth and household debt as examples of where risks may increase.

Inflation is expected to be higher in 2013 from last year even as it remains modest, the central bank said today. Consumer prices in Southeast Asia’s third-largest economy rose 1.2 percent in December from a year earlier, the slowest since February 2010. It averaged 1.6 percent in 2012.

Prices Contained

“Selected global food prices and domestic factors are expected to increase costs and contribute to higher prices,” Bank Negara said in its statement today. “Nevertheless, given modest global growth prospects, pressures from global commodity prices” are expected to be contained, it said.

The ringgit has fallen 1.6 percent this year while the benchmark FTSE Bursa Malaysia KLCI Index has slumped 3.6 percent in the same period amid speculation the ruling coalition may lose seats in the upcoming general election. The ringgit fell 0.8 percent to 3.1065 a dollar as of 5:32 p.m. local time.

Malaysia’s gross domestic product rose 5.2 percent in the third quarter from a year earlier, after expanding 5.6 percent in the previous three months. The government forecasts growth of 4.5 percent to 5.5 percent this year.

Economic indicators suggest a “robust expansion” in Malaysia last quarter, driven by domestic consumption and investment activity, the central bank said.

“Domestic demand is expected to continue to expand, underpinned by firm private-sector activity,” it said. “The external sector is also expected to gradually improve and provide additional support to the economy.”

To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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