Malaysia's central bank kept its benchmark interest rate unchanged for a 17th straight meeting, avoiding an inflation-fighting increase in borrowing costs that may further weaken economic growth.
Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent, according to a statement in Kuala Lumpur today. The decision was expected by all 14 economists in a Bloomberg News survey.
"Going forward, the risks to inflation are on the upside, while the risks to growth are on the downside,'' the central bank said. "Should the balance of risks shift towards higher inflation, the bank will undertake the appropriate monetary policy measures. At this stage the risks are assessed to be about balanced.''
Asian central banks have become more inclined to raise interest rates as record food and fuel costs stoke inflation. Malaysia, seeking to sustain growth after the government's worst electoral performance in March, is favoring other measures to curb prices even as inflation reached a 14-month high in April.
"The decision to some extent is influenced by politically induced domestic and fiscal policy uncertainties,'' said Suhaimi Ilias, chief economist at Aseambankers Malaysia Bhd in Kuala Lumpur. "Hence the need for interest-rate policy to do its bit to sustain domestic activities amid external headwinds in terms of a sluggish U.S. economy.''
Southeast Asia's third-largest economy is expected to grow 5 percent to 6 percent in 2008, easing from 6.3 percent last year as global trade slows, Bank Negara said in March.
'Clearer Evidence'
"There is now clearer evidence of the slowing growth in the major economies,'' the bank said. "This moderation in growth is expected to be felt by the regional economies, including Malaysia, during the second half of the year.''
Still, strong domestic demand helped the Malaysian economy perform well in the first quarter, the central bank said. Shipments of commodities shored up net exports, countering declining electronics sales, it said.
"There are strong upside risks to global inflation due to sustained high food and energy prices,'' Bank Negara said today. "While such pressures are likely to ease should global growth moderate, in the more immediate term, domestic price pressures are likely to be sustained.''
The government is trying to rein in inflation by lifting spending on agriculture to boost food supply, extending some price controls and delaying government workers' retirement age to raise incomes, Suhaimi said.
Angry Voters
Prime Minister Abdullah Ahmad Badawi, whose ruling coalition lost its two-thirds majority in parliament in March 8 elections after higher living costs angered voters, this month eased import restrictions on steel and capped the price of more types of rice to contain inflation.
Governor Zeti Akhtar Aziz, who has kept the central bank's benchmark interest rate unchanged at 3.5 percent since April 2006, has said raising borrowing costs is ``not the answer'' to check inflation in an environment where prices are spurred by supply shortfalls.
Surging Prices
Surging food and fuel prices have hurt consumers in Asia, where about 600 million people survive on less than $1 a day, prompting Indonesia this month to unexpectedly raise interest rates for the first time in more than two years. The Bank of Thailand, which kept its interest rate unchanged on May 21, said it may raise borrowing costs if inflation accelerates.
Malaysia's consumer prices rose 3 percent from a year earlier in April. The central bank forecasts inflation may average as much as 3 percent this year, accelerating from 2 percent in 2007.
Malaysia's key interest rate is at the highest since its introduction in April 2004, after policy makers lifted it three times from November 2005 to April 2006 to curb inflation.
Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent, according to a statement in Kuala Lumpur today. The decision was expected by all 14 economists in a Bloomberg News survey.
"Going forward, the risks to inflation are on the upside, while the risks to growth are on the downside,'' the central bank said. "Should the balance of risks shift towards higher inflation, the bank will undertake the appropriate monetary policy measures. At this stage the risks are assessed to be about balanced.''
Asian central banks have become more inclined to raise interest rates as record food and fuel costs stoke inflation. Malaysia, seeking to sustain growth after the government's worst electoral performance in March, is favoring other measures to curb prices even as inflation reached a 14-month high in April.
"The decision to some extent is influenced by politically induced domestic and fiscal policy uncertainties,'' said Suhaimi Ilias, chief economist at Aseambankers Malaysia Bhd in Kuala Lumpur. "Hence the need for interest-rate policy to do its bit to sustain domestic activities amid external headwinds in terms of a sluggish U.S. economy.''
Southeast Asia's third-largest economy is expected to grow 5 percent to 6 percent in 2008, easing from 6.3 percent last year as global trade slows, Bank Negara said in March.
'Clearer Evidence'
"There is now clearer evidence of the slowing growth in the major economies,'' the bank said. "This moderation in growth is expected to be felt by the regional economies, including Malaysia, during the second half of the year.''
Still, strong domestic demand helped the Malaysian economy perform well in the first quarter, the central bank said. Shipments of commodities shored up net exports, countering declining electronics sales, it said.
"There are strong upside risks to global inflation due to sustained high food and energy prices,'' Bank Negara said today. "While such pressures are likely to ease should global growth moderate, in the more immediate term, domestic price pressures are likely to be sustained.''
The government is trying to rein in inflation by lifting spending on agriculture to boost food supply, extending some price controls and delaying government workers' retirement age to raise incomes, Suhaimi said.
Angry Voters
Prime Minister Abdullah Ahmad Badawi, whose ruling coalition lost its two-thirds majority in parliament in March 8 elections after higher living costs angered voters, this month eased import restrictions on steel and capped the price of more types of rice to contain inflation.
Governor Zeti Akhtar Aziz, who has kept the central bank's benchmark interest rate unchanged at 3.5 percent since April 2006, has said raising borrowing costs is ``not the answer'' to check inflation in an environment where prices are spurred by supply shortfalls.
Surging Prices
Surging food and fuel prices have hurt consumers in Asia, where about 600 million people survive on less than $1 a day, prompting Indonesia this month to unexpectedly raise interest rates for the first time in more than two years. The Bank of Thailand, which kept its interest rate unchanged on May 21, said it may raise borrowing costs if inflation accelerates.
Malaysia's consumer prices rose 3 percent from a year earlier in April. The central bank forecasts inflation may average as much as 3 percent this year, accelerating from 2 percent in 2007.
Malaysia's key interest rate is at the highest since its introduction in April 2004, after policy makers lifted it three times from November 2005 to April 2006 to curb inflation.
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Interesting commentary.
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