Malaysia Holds Off On Second Rate Increase After Exports Slow

Malaysia kept its benchmark interest rate unchanged and said it will assess the balance of risks between the outlook for growth and inflation when considering further policy moves.

Bank Negara Malaysia held the overnight policy rate at 3.25 percent, it said in a statement in Kuala Lumpur today. The decision was predicted by 11 of 21 economists surveyed by Bloomberg News, while 10 forecast a 25 basis-point increase.

Slowing growth in China and a stagnating European economy have damped the outlook for Asian exports, prompting policy makers in Malaysia to delay adding to July’s rate increase even as inflation accelerates. The Southeast Asian nation’s exports climbed the least in more than a year in July, while output growth that month was the weakest since February 2013.

“The global backdrop is probably not as rosy as it was looking back in July,” Rahul Bajoria, a Singapore-based economist at Barclays Plc, said before the decision. “Given the current scenario which is playing out, it seems that there is some time; there’s an option to take it more gradually rather than rush into hiking rates.”

The ringgit fell 0.3 percent to 3.2280 against the U.S. dollar today. It has strengthened about 1.5 percent this year, among the best performers of 11 major Asian currencies tracked by Bloomberg. Interest-rate swaps are pricing in a 50 basis-point increase in borrowing costs in the next year, data compiled by Bloomberg show.

Diverging Policies

Southeast Asian central banks have diverged in policy actions, with the Philippines raising the benchmark rate twice this year to rein in price expectations, and Indonesia holding borrowing costs. Thailand kept its key rate steady for a fourth straight meeting yesterday to support the economy.

While Malaysia’s economy is showing signs of slowing after expanding last quarter at the fastest pace since the final three months of 2012, Governor Zeti Akhtar Aziz has said gross domestic product expansion this year will probably exceed the central bank’s forecast range of 4.5 percent to 5.5 percent.

The inflation rate was 3.3 percent in August, quickening from a 3.2 percent pace in July. Price gains will quicken this year and into 2015 when the government implements a new tax on goods and services, Zeti said in an interview this month.

Policy makers will monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation, the central bank said today.

“The current stance of monetary policy remains supportive of growth,” it said. “Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks. This is to ensure the sustainability of the growth prospects of the Malaysian economy.”

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