Bank Negara.: The Rate Stays!

For the sixth time, Bank Negara Malaysia kept the interest rates steady at 2.0 per cent,saying inflation will remain modest in 2010 as the economy revives.

Analysts said that the central bank appeared in no hurry to hike rates, in sharp contrast with some other central banks in region, and the bank said current monetary policy was “appropriate” and would continue to support economic activity.

The decision comes as Asia’s third-most trade dependent economy is recovering from an economic slump triggered by the global financial crisis. A pick-up in domestic demand helped the economy to contract less-than-expected 1.2 per cent in the third quarter.

“If there are any rate hikes, we think it will be in the second half of next year in the small magnitude of 25 to 50 basis points,” said Julia Goh, an economist with CIMB in Kuala Lumpur.

The Malaysian government kicked in with a RM67 billion ringgit stimulus package to cushion the impact of global slowdown, which the central bank said was helping the recovery.

The central bank noted that the private consumption and public sector spending would lend support to the economic growth going forward. While that was expected to turn inflation positive in the coming months, the central bank was not alarmed about price pressures building up in the economy.

“In the absence of further unanticipated price adjustments and external influences, inflation is expected to remain modest in 2010,” the central bank said in a statement.

The central bank said it would only hold six rate setting meetings from 2010 onwards, down from eight up until now, in accordance with a new act.

“As price pressures and inflation expectations are expected to remain contained going forward, the assessment is that the current monetary policy stance is appropriate and will continue to provide support for economic activity,” the statement added.

A Reuters poll showed 15 economists saying rates would be held at 2 per cent with the earliest sign of a hike coming after the first half of next year.

The central bank has cut the benchmark OPR by a total of 150 basis points since November in an attempt to reduce the impact of the global downturn on the local economy.

It stopped easing in April and has repeatedly said that rates are “appropriate” and that rate cuts had been “frontloaded”.

Inflation is not a worry as consumer prices have turned negative. It was a negative 2 per cent in September and inflation is not expected to return until the fourth quarter.