Malaysia holds key rate as currency weakens, inflation quickens

[KUALA LUMPUR] Malaysia's central bank left interest rates unchanged for a seventh meeting as quickening inflation and a weakening currency reduced scope for the central bank to add stimulus.

Bank Negara Malaysia kept the overnight policy rate at 3.25 per cent, it said in a statement in Kuala Lumpur on Friday. The decision was predicted by 22 of 23 economists surveyed by Bloomberg News, while one forecast a 25 basis-point increase.

Malaysia's export-dependent economy is being threatened by a rout in commodity prices and the country's woes are being exacerbated by an exodus of foreign funds as they dumped about US$3.8 billion of the nation's shares this year. Policy makers have ruled out capital controls as the currency plunged to a 17- year low and eroded reserves.

"We continue to expect Bank Negara Malaysia to pause through 2015, remaining firmly in 'wait and see' mode," Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd, said before the decision. "Monetary easing will further weaken the currency and possibly exacerbate capital outflows."

The ringgit fell for a 12th week, the longest stretch in Bloomberg data going back to 1971, as slowing Chinese growth and prospects of a US interest-rate increase sapped demand for developing-nation assets. It touched 4.3798 a dollar Thursday, the lowest level since January 1998 and has dropped 19 percent this year.

Growth in the economy slowed to 4.9 per cent in the second quarter from a year earlier, expanding the least in almost two years after a new consumption tax curbed private spending. Consumer prices rose 3.3 per cent in July, the fastest rate in almost a year. Inflation is forecast to be in a range of 2 per cent to 3 per cent in 2015.

BLOOMBERG