Malaysia holds rate as prices seen moderating after recent surge

[KUALA LUMPUR] Malaysia left its benchmark interest rate unchanged as policy makers judged consumer price gains will moderate and as a stronger ringgit reduced the need to guard against capital outflows.

Bank Negara Malaysia kept its key rate at 3 per cent, it said in a statement in Kuala Lumpur on Friday. The decision was predicted by all 22 economists in a Bloomberg survey.

Malaysia joins the Philippines in holding their firepower even as the threat of inflation grows in South-east Asia. Bank Negara has said inflation will moderate after being relatively high in the first half of this year, while the pressure to add stimulus is subsiding as a recovery in exports boosts the economy.

The central bank faces "very limited pressure to hike rates," Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd in Singapore, said before the decision. "The recent surge in inflation is due to higher domestic fuel prices, and I think growth dynamics do not point to any emergence of strong inflationary pressure."

The ringgit is among the best performing Asian currencies this quarter, rising about 1.8 per cent against the US dollar. Inflation was 5.1 per cent in March, the fastest pace since 2008, as higher oil prices pushed up transport costs.

The central bank in March forecast inflation to average 3 per cent to 4 per cent in 2017, up from 2.1 per cent last year. Economic growth may quicken to as high as 4.8 per cent, from 4.2 per cent in 2016, it said.

BLOOMBERG