Malaysia holds rates, banks on domestic demand
KUALA LUMPUR, May 11 — Malaysia’s central bank kept its key interest rate at 3.0 per cent, as expected, taking comfort in domestic demand supporting growth even as the euro zone debt crisis continues to fester.
While the Malaysian economy is affected by the global developments, domestic demand has continued to support growth, driven by firm consumption and investment activity.” — Bank Negara
The bank said inflation in the Southeast Asian nation was expected to moderate in 2012 on improved domestic supply and stable demand although there were risks it could rise on disruptions to global supply in energy and commodity markets.
“While the Malaysian economy is affected by the global developments, domestic demand has continued to support growth, driven by firm consumption and investment activity,” the central bank said after its monetary policy review today.
“This trend is projected to continue,” Bank Negara Malaysia said.
Malaysia’s last change in its overnight policy rate (OPR) was one year ago, when the central bank made the fourth and last hike in a tightening cycle that began in 2010 to stem largely food price-driven inflation.
Today’s hold was expected by all 16 economists polled by Reuters earlier in the week.
The economists say the hold reflected a common view that the central bank remains more concerned about inflationary pressures than risks to growth from the global slowdown.
Nor Zahidi, chief economist of Malaysian Rating Corp, said of the central bank’s decision today: “There are no compelling reasons to either hike or trim the benchmark rate at this time.”
Price pressures ‘manageable’
Alan Tan, chief economist with Affin Investment Bank, said that with the US Federal Reserve likely to raise its near-zero policy rate only in late 2014, “we expect Bank Negara to maintain an accommodative stance of the policy rate, and hold off any rate rises in the near future”.
“Any upward price pressure in inflation arising from the pick-up in food prices will be manageable in the months ahead,” he said.
Tan said Malaysia’s consumer price index will be up around 3 per cent this year — at the higher end of Bank Negara’s projection of between 2.5 and 3 per cent in 2012.
Inflation eased to 2.1 per cent in March year-on-year, with demand remaining stable while prices were kept in check by increased government subsidies. It peaked at 3.5 per cent in June, and has been easing since November.
Malaysia, unlike most other regional central banks, have kept rates on hold the past year, encouraged by strong domestic demand driven by stable employment and public-sector spending as well as private investment in the commodity sector.
While central banks in the Philippines, Thailand and Indonesia have kept rates steady at recent monetary policy meetings, they made rate cuts in late 2011 or early this year as inflation rates fell and worries about global growth increased.
In March, the Malaysian central bank projected that the country’s economy would grow 4-5 per cent in 2012.
But in the short term, the outlook appears cloudy. Exports in March contracted 0.1 per cent from a year earlier, a far worse performance than the 3.4 per cent growth analysts expected, due to a sharp slowdown in demand from China and Europe. — Reuters