Malaysia's central bank kept its key interest rate unchanged at 3.00 percent on Thursday, pausing to assess the extent of the global slowdown, and analysts predicted that it would stand pat for the rest of 2011. Central banks across Asia have raised interest rates to cool consumer prices, but signs that inflation may be peaking and economic growth slowing have prompted them to put further tightening on hold.
"Prolonged uncertainties in the financial markets, weakness in the labour market and the prevailing fiscal conditions in the advanced economies have heightened the downside risks and fragility of the global economy," Bank Negara, said in a statement. The bank said inflation was expected to remain relatively stable for the rest of the year.
All 15 economists in a Reuters poll had forecast Bank Negara would keep the overnight policy rate on hold, with the median forecast also predicting that interest rates will not budge again this year. "Downside risks to growth from external conditions take precedence over inflationary constraints and we expect Bank Negara to adopt a wait and see approach," said CIMB Investment Bank economist Lee Heng Guie.
"Inflation, in our view, has already peaked...If growth becomes firmer, the central bank will resume rate normalisation but this will not happen until at least the first half of next year, and we expect to see the overnight policy rate unchanged until then." The stock market closed up 0.36 percent before the rate decision while the ringgit was little changed at 2.9900 to the dollar.
Bank Negara, the first Asian central bank to lift borrowing costs in 2010, has raised rates only once since July last year, at its May meeting this year. Neighbouring Indonesia and South Korea also held fire after deliberating on rates on Thursday, as concerns over the global downturn and Europe's debt crisis outweighed worries about inflation.
Malaysian inflation has been in check while economic growth remains healthy although slowing slightly, a trend that economists said gives the authorities room to keep rates on hold to review the extent of the global economic slowdown. But some analysts expect Malaysian economic growth to brake sharply this year as difficult global conditions erode demand for its exports.
Data on Thursday showed that Malaysian shipments to the United States tumbled 15 percent on year in July although overall export growth exceeded market expectations thanks to strong demand for commodities. Bank Negara said domestic growth prospects remained positive due to favourable employment conditions and stronger private consumption and private investment.