-- Malaysia's central bank kept its benchmark interest rate unchanged for an 11th meeting, saying the domestic economy remains ``strong'' and can withstand turmoil in global financial markets.
Bank Negara Malaysia held its overnight policy rate at 3.5 percent, according to a statement in Kuala Lumpur today. The decision was expected by all 20 economists in a Bloomberg survey.
Malaysia is ``not insulated'' from volatility in world equity and debt markets and the possibility of moderating global demand caused by the U.S. housing-loan crisis, Bank Negara said. Analysts say central bank Governor Zeti Akhtar Aziz may need to consider a rate cut in coming months if slowing exports damp growth in Southeast Asia's No. 3 economy.
``The current interest-rate level can accommodate growth so expect no changes,'' said Imran Nurginias Ibrahim, an economist at MIDF Amanah Investment Bank in Kuala Lumpur. ``Still, Bank Negara will monitor the current subprime issue closely and adjust accordingly if the situation warrants.''
Prime Minister Abdullah Ahmad Badawi's government expects higher public spending to bolster domestic demand and help lift growth to a three-year high of 6 percent in 2007, even as overseas orders for the country's electronics weaken.
``There's no compelling reason for Bank Negara to take any action on the interest rate front at the moment,'' said Leslie Tang, an economist at UOB-Kay Hian Pte in Singapore. The $147 billion economy is ``moving forward healthily with growth expected to come in at least 5.8 percent this year and inflation risks remain on the upside.''
`Comfort Zone'
Economic growth in Malaysia, which produces laptop computers, semiconductors and mobile phones, cooled in the first quarter to 5.3 percent from a year earlier, the slowest pace in 18 months, amid faltering shipments.
``The inflation rate is within Bank Negara's comfort zone of 2 to 3 percent, and the economy is supported by domestic demand as external demand remained soft,'' said Suhaimi Ilias, chief economist at Aseambankers Malaysia Bhd. in Kuala Lumpur. Consumer prices rose 1.6 percent in July from a year earlier, the fastest pace in five months.
Malaysia's inflation rate had fallen since reaching a seven-year high in March 2006 when Abdullah's government last raised fuel prices. The central bank said last month it expects inflation to average ``at the lower end'' of its March forecast of 2 to 2.5 percent this year, down from 3.6 percent in 2006.
Commodity Prices
Inflation is expected to remain ``low,'' even though rising global food and commodity costs could increase the risk of higher prices, the central bank said today. Inflationary expectations are ``well-contained,'' it added.
``Bank Negara will maintain its cautious stance,'' said Gundy Cahyadi, an economist at Ideaglobal in Singapore. ``Yet, if inflation averages in the bottom half of the 2 to 2.5 percent window, this might embolden Bank Negara to go for a cut, especially if we see the Fed adjusting its rates.''
The U.S. Federal Reserve on Aug. 17 acknowledged the risk that turmoil in the U.S. housing and credit markets may slow growth in the world's largest economy by lowering its so-called discount rate, or what it charges banks for direct loans, by 0.5 percentage point to 5.75 percent. The reduction signals the Fed may cut its target rate from the current level of 5.25 percent on or before its Sept. 18 meeting.
``During the first half of 2007, growth of the Malaysian economy has remained favourable with the slower external sector being balanced by stronger growth in domestic demand,'' the central bank said in its monetary policy statement today. Still, ``the turbulence in the global financial markets over the recent weeks has created a higher degree of uncertainty regarding global economic growth.''
Malaysia's key interest rate is at its highest since the benchmark was introduced in April 2004, after policy makers lifted it three times from November 2005 to April last year to curb inflation.
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