(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
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)