Bank Negara holds rates, sees signs of global recovery
KUALA LUMPUR, March 9 — Malaysia’s central bank kept its key interest rate at three per cent today, giving a more upbeat assessment of the global economy even as slower trade activity drags on growth in Asia.
The bank, which has now kept rates on hold for five straight meetings since last May, said it remained wary of inflation risks from higher energy and commodity prices.
“Stress in the international financial markets has been partly alleviated by the introduction of measures to address the European sovereign debt crisis,” the bank said in its statement.
“In North America, there have been tentative signs of improvement in the economy.”
The central bank has kept its monetary policy unchanged since last May, when it raised the benchmark rate for the fourth time after starting a tightening cycle in 2010.
Many of its emerging market counterparts have been easing policy as their focus turns from fighting inflation to shoring up economic growth in the face of weak global demand.
The decision was in line with a Reuters poll in which 14 out of 16 economists expected Bank Negara to keep the rate unchanged, balancing the need to support growth while taking into account inflation risks.
“Bank Negara Malaysia’s move is widely expected,” said Yeah Kim Leng, chief economist at RAM Holdings Bhd, who expected the benchmark rate to stay at three per cent throughout this year.
“Domestic demand remains resilient but inflationary pressure could still remain a threat at this juncture.”
Inflation in Malaysia eased to 2.7 per cent in January year-on-year, falling below three per cent for the first time since February last year. It had peaked in June 2011 at 3.5 per cent, before easing in the second half of the year as prices fell and demand softened.
The bank said in its statement that high global commodity prices “continue to pose risks to inflation” in Malaysia, which is the world’s second-largest producer of palm oil.
Both the Philippines and Indonesia have recently cut interest rates by 25 basis points in a move to spur growth and to shield their domestic markets from weakening global demand, while economists expect Singapore and Thailand to keep monetary policy steady after earlier easing.
Increased global economic risks and easing inflationary pressures have analysts predicting that central banks in the region are likely to continue their focus on supporting economic growth and keep interest rates steady.
The central bank said growth in Malaysia would continue to be driven mainly by domestic demand but that a weaker trade performance would weigh on the economy.
Malaysia’s January exports data on Wednesday were below expectations, rising only 0.4 per cent year-on-year, compared to a Reuters forecast of 2.6 per cent.
The sharp slowdown, against a 6.1 per cent rise in December, may not have been surprising as Lunar New Year holidays fell in January this year, compared with February last year, distorting trade patterns in Asia.
Malaysia’s trade-dependent economy slowed to an annual pace of 5.2 per cent in the fourth quarter, beating expectations as robust consumer demand and heavy government spending helped shield the country from a worsening global outlook. This year’s GDP growth is expected to moderate in line with the region. — Reuters