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Malaysia Holds Rate as Quickening Growth Reduces Stimulus Need

Malaysia held interest rates unchanged for an 11th straight meeting as a strengthening global recovery reduced the need for monetary 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 20 economists surveyed by Bloomberg News.

Southeast Asian nations have shown resilience to the global slowdown, with Malaysia’s economy expanding at the fastest pace in more than two years last quarter. While the government has refrained from cutting fuel subsidies ahead of elections, domestic demand and wage increases are adding to price pressures that HSBC Holdings Plc and Barclays Plc economists predict may prompt the central bank to raise borrowing costs this year.

“Benign inflation and healthy growth make for a stable monetary policy stance,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the decision. “Though the market is not expecting any rate hike in the near term, risk of a monetary action by the central bank in the second half of the year is rising if the authority hopes to anchor inflation expectation.”

The ringgit has lost more than 1.5 percent this year amid concern Prime Minister Najib Razak’s ruling coalition will lose seats in parliament. The FTSE Bursa Malaysia KLCI Index of stocks has fallen 2.6 percent after hitting a record on Jan. 7.

Risk Premium

“Investors are pricing some degree of risk in the currency and equity markets,” said Rahul Bajoria, a Singapore-based economist at Barclays, who forecasts a rate increase in the fourth quarter as inflation pressures rise. “Once the election uncertainty is out, fundamentals will push their weight on the market. We remain positive on the ringgit.”

The ringgit was little changed at 3.1045 against the U.S. dollar today. The decision was released after markets closed.

Najib, whose governing National Front alliance won the 2008 vote by its narrowest margin in five decades, must dissolve parliament by April 28 for polls to be held within 60 days. The premier has boosted spending on roads and railways, raised civil servant salaries and pensions, waived school fees and boosted handouts for the poor.

Malaysia’s government forecasts economic growth of 4.5 percent to 5.5 percent this year. The expansion will be driven by consumption and investment while inflation will be “well below” 3 percent this year, Bank Negara Governor Zeti Akhtar Aziz said last week. Consumer prices rose 1.3 percent in January from a year earlier, after climbing 1.2 percent the previous month.

“While inflation is expected to rise during the year, the expectation is for it to remain modest,” the central bank said in a statement today. “The Monetary Policy Committee considers the current stance of monetary policy to be appropriate given the outlook for inflation and growth.”

Indonesia today kept its benchmark rate at a record-low 5.75 percent, as predicted by all 21 economists in a Bloomberg survey. In Thailand, the central bank held borrowing costs last month for a third straight meeting.

“We continue to see risks of upward policy normalization in the second half of 2013” for Malaysia, said Lim Su Sian, a Singapore-based economist at HSBC.

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