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New Malaysia central bank chief strikes neutral tone on rate

Kuala Lumpur

MALAYSIA'S central bank kept its benchmark interest rate steady in the first policy meeting under a new governor, providing support to an economy that Prime Minister Mahathir Mohamad is trying to revamp.

Bank Negara Malaysia held the overnight policy rate at 3.25 per cent, it said in a statement in Kuala Lumpur on Wednesday, as predicted by all 19 economists in a Bloomberg survey.

The economy's growth momentum will likely be sustained, underpinned by domestic and external demand, while inflation for this year is forecast to be lower than initially projected, the central bank said.

Governor Nor Shamsiah Mohd Yunus has ample room to keep policy unchanged despite an emerging-market sell-off that's forced her counterparts in Indonesia and the Philippines to take more aggressive steps to defend their currencies.

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The inflation outlook remains benign in Malaysia after the government scrapped a consumption tax, while economic growth may ease as Dr Mahathir cuts back on spending to rein in government debt.

"We believe the overall tone of the statement is neutral and not as dovish as some in the market might have been expecting," said Jennifer Kusuma, a senior Asia rates strategist at Australia & New Zealand Banking Group in Singapore. "Overall, BNM looks to be comfortable on hold."

Malaysia was among the first central banks in Asia to raise rates this year with a hike in January. Since then, the economy has benefited from subdued price growth and a currency that's performing better than peers.

A looming trade war between the US and China, Malaysia's biggest trade partners, is a growing risk for the export-reliant nation, although official growth forecasts remain solid at more than 5 per cent this year.

"The Malaysian economy is expected to remain on a steady growth path," the central bank said in its statement. At the current interest rate, "the degree of monetary accommodativeness is consistent with the intended policy stance", it said.

Inflation, which has been below 2 per cent for four months, is "likely to turn negative in some months and remain low in the first half of 2019", BNM said.

The central bank seems to be "signalling that there is room to ease if need to," said Julia Goh, an economist at United Overseas Bank in Kuala Lumpur, who sees no change in interest rates for the rest of the year. "Bank Negara is likely in a wait-and-see mode." BLOOMBERG

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