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Malaysia central bank seen holding key rate as inflation eases

[KUALA LUMPUR] Malaysia's central bank will likely keep its benchmark rate unchanged on Thursday, a Reuters poll showed, as inflation is expected to continue to trend downwards and economic growth remains solid.

All 11 economists polled saw no change to Bank Negara Malaysia's (BNM) key rate, which has been held steady at 3 per cent since July 2016.

Analysts say the central bank is likely to hold its overnight policy rate for the rest of 2017, barring a sharp hike in core inflation, which excludes food and fuel costs.

"As long as there is no significant pickup (in core inflation), I think BNM is quite comfortable to leave its key rate for the rest of the year," said Brian Tan, a Singapore-based economist with Nomura.

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The annual headline inflation rate was 3.2 per cent in July, the fourth straight month it slowed after hitting an eight-year high of 5.1 per cent in March. Core inflation in July was 2.6 per cent.

The central bank expects full-year inflation to be in the 3-4 per cent range.

Malaysia's ringgit currency, which hit a 19-year low of 4.9880 to the US dollar on Jan 4, has strengthened about 5.6 per cent against it this year.

Economic growth has risen this year, reaching 5.7 per cent in the first half. In August, the central bank revised up its full-year growth forecast to above 4.8 per cent, from a 4.3-4.8 per cent range.

ING said on Wednesday that the acceleration in growth plus other factors are reasons for BNM to begin raising interest rates.

But external risks from North Korea's nuclear threat and various factors suggest the central bank "will not move anytime soon", it said, predicting a hike in the third quarter of 2018.

REUTERS