Malaysia's central bank holds key rate, sees steady growth track ahead

[KUALA LUMPUR] Malaysia's central bank, expressing optimism the country will stay on a steady growth path through 2017, kept its key interest rate at 3.00 per cent on Wednesday, as expected.

Bank Negara Malaysia (BNM) said there is sufficient activity to support the economy, even as annual growth slipped to 4 per cent in the second quarter, the slowest in nearly seven years.

"Overall, the economy is projected to expand within expectations in 2016, and to remain on a steady growth path in 2017," the central bank said in a statement.

Eleven of 12 economists in a Reuters poll had forecast no change to the overnight policy rate (OPR). On July 13, BNM surprised economists with the first rate cut in seven years, by 25 basis points.

The day after that cut, BNM Governor Muhammad Ibrahim told the national news agency it was a "pre-emptive move" to ensure solid growth this year and there wouldn't be a series of rate reductions.

Some economists believe BNM may cut the key rate to boost the economy at its next meeting on Nov 23. "November is still up in the air," said UOB economist Julia Goh, adding that the decision "will depend on the data and what happens by then."

Growth in the trade-dependent Southeast Asian economy has slowed in the last five quarters, mainly due to weakness in global crude and commodities prices, and a slowdown in its top trade partner China.

While noting that downside risks to global growth "remain high", BNM said domestic demand "remained the key driver of growth" and that in the second quarter, Malaysia's private consumption and private investment grew at a faster pace.

Earlier on Wednesday, Malaysia reported worse-than-expected July exports, which had their biggest slump in 15 months. They were dragged down by a sharp dip in shipments to China and a fall in key commodity exports.

In January, Malaysia trimmed its 2016 growth projection to 4.0-4.5 per cent from 4.0-5.0 per cent on expectations of a sustained slump in global crude prices.

Inflation remains low, sliding for a fifth consecutive month in July, when the annual rate was 1.1 per cent.

Prime Minister Najib Razak faces political pressure over a financial scandal tied to state-owned 1Malaysia Development Berhad (1MDB) and some tough economic challenges.

The government likely will need to tighten spending to get close to this year's targeted budget deficit of 3.1 per cent of gross domestic product. At the end of the June, the deficit stood at 5.5 per cent, according to treasury department data.

REUTERS