(Analyst comment, details)
By Anuradha Raghu
KUALA LUMPUR, March 7 Malaysia's central bank held its key interest rate steady at 3.00 percent on Thursday, as expected, saying its current monetary stance is appropriate and in line with the country's growth and inflation outlook.
All 15 economists polled by Reuters had expected the overnight policy rate to be kept steady as inflation remains mild, but said the central bank may consider a hike in the second half of the year if prices begin to climb at a faster pace.
The central bank last changed its rate settings in May 2011.
"Higher global prices of selected food commodities and domestic factors are expected to increase costs and contribute to higher prices," the central bank's monetary policy committee said in a statement.
"Nevertheless, in line with modest global growth prospects, pressures from global commodity prices are expected to be contained."
Malaysia's economic growth accelerated to an annual pace of 6.4 percent in the fourth quarter, the fastest expansion since 2010 as robust domestic demand offset weak exports.
The surprisingly robust growth has strengthened the case for Bank Negara to keep the overnight policy rate on hold.
With global demand still sluggish and benign outlooks for domestic inflation at present, other central banks in the region have also been keeping their powder dry in case external conditions suddenly deteriorate as they did last year.
Indonesia's central bank earlier on Thursday left its key rate unchanged. Australia's central bank made the same decision on Tuesday and Thailand stood pat last month.
DOMESTIC DEMAND OFFSETTING WEAK GLOBAL CONDITIONS
As with other Southeast Asian countries, Malaysia's resilient domestic consumption and increased government spending ahead of elections that must be called within weeks has cushioned the trade-dependent country from soft demand from its major Western trading partners and China.
Investors attracted by the region's resilience flocked to its stock and bond markets last year, helping boost Malaysia's benchmark stock index 10 percent and the ringgit currency nearly 4 percent against the dollar.
But uncertainty over the elections -- which look set to be Malaysia's most hotly contested ever -- have made foreign and domestic investors jittery in recent months.
"A lot of market players have been talking about the elections. Once that is over and done with, sentiment will shift back to the fundamentals of the economy, of which the signs remain quite solid for now," said OCBC economist Gundy Cahyadi.
Malaysia's annual inflation rate, one of the lowest in the region, picked up modestly in January to 1.3 percent from a year earlier, moving up from December's near three-year lows.
But economists say price pressures will pick-up in coming months alongside an expected global economic recovery and on post-election measures which could include a gradual removal of subsidies to curb a budget deficit which has ballooned into one of Asia's biggest.
"There is enough momentum to sustain at least 5 percent growth this year. At the same time, for further growth, Malaysia still needs a stronger economic rebound in the global economy," said Gundy, adding that markets will likely trend in line with the regional tone.
Trade and factory output data will be released on March 11. (Reporting by Anuradha Raghu; Editing by Kim Coghill)