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Malaysia Holds Key Rate as Growth Support Trumps Price Pressures

Malaysia held its benchmark interest rate for a 15th straight meeting to support economic growth even as inflationary pressures rise after cuts to state fuel and sugar subsidies.

Bank Negara Malaysia maintained the overnight policy rate at 3 percent, the central bank said in a statement in Kuala Lumpur today. The outcome was predicted by all 20 economists surveyed by Bloomberg News. It is the last scheduled rate decision for 2013.

Prime Minister Najib Razak scrapped sugar subsidies last month after raising gasoline prices in September as he focuses on improving government finances to avert a credit rating downgrade. Inflation accelerated to a 20-month high in September, adding pressure on the central bank to curb price gains while supporting economic growth.

“With fiscal policy becoming less expansionary, and macro-prudential measures sapping credit growth, we doubt Bank Negara will rush to increase the overnight rate,” Santitarn Sathirathai, an economist at Credit Suisse Group AG in Singapore, said before the decision.

The ringgit is the best performer against the U.S. dollar this quarter among Asia’s 11 most-active currencies tracked by Bloomberg, paring its losses for 2013 to 3.8 percent. It was little changed at 3.1813 as of 6:15 p.m. in Kuala Lumpur.

The economy may expand 5 percent to 5.5 percent in 2014 from an estimated 4.5 percent to 5 percent this year, the government said last month. Consumer prices rose 2.6 percent in September from a year earlier, compared with a 1.9 percent gain in August. Inflation is projected by the government to average 2 percent to 3 percent in 2014.

Edging Up

“Looking ahead, inflation is expected to edge up driven by domestic cost factors,” the central bank said today. “However, the inflation outlook is expected to be tempered by a stable external price environment, moderate domestic demand pressures, expansion in domestic capacity and improvements in food production and distribution.”

Central bank Governor Zeti Akhtar Aziz said in October that over the next six months to a year, she would focus “mostly on growth” rather than inflation, because global expansion will remain “subdued.” Inflation is stable as “demand is on a steady growth path and we have significant expansion of capacity,” she said in an Oct. 12 interview.

“In the Monetary Policy Committee’s assessment, there continue to be uncertainties in the balance of risks surrounding the outlook for domestic growth and inflation,” the central bank said in its statement. “The MPC will continue to carefully assess the global and domestic economic and financial developments and their implications on the overall outlook for inflation and growth of the Malaysian economy.”

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