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Malaysia Holds Key Rate to Protect Growth as Inflation Quickens

Malaysia held its benchmark interest rate for a 16th straight meeting to shield growth as domestic demand faltered and inflation accelerated to the fastest in two years in December.

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 17 economists surveyed by Bloomberg News.

“There has been some slowdown within the domestic front and the fact that inflation has already crept up above 3 percent during the month of December is a sign of inflationary pressure picking up,” Patricia Oh Swee Ling, an economist at AMMB Holdings Bhd., said before the decision. “There could be a potential increase, if not upside pressure, on the OPR during the second half of this year.”

Policy makers in India, Turkey and Brazil have raised borrowing costs this month as the risk of capital flight weakens emerging-market currencies. If inflation was caused by rising costs alone, without knock-on effects on other prices, the impact will be temporary and may not warrant addressing through interest rates, Malaysian central bank Governor Zeti Akhtar Aziz said Dec. 18, after cuts to state fuel and sugar subsidies.

The ringgit has weakened about 2 percent against the dollar since Dec. 18, when the Federal Reserve said it would start trimming monthly bond purchases, making it the worst performer among Asia’s 11 most-traded currencies tracked by Bloomberg.

“The Monetary Policy Committee will continue to carefully evaluate the global and domestic economic and financial developments and their implications on the overall outlook for inflation and growth of the Malaysian economy,” it said today. “The MPC remains focused on ensuring medium-term price stability that would contribute to sustainable economic growth.”

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