Malaysia's central bank likely to keep rates steady

Malaysia's central bank likely to keep rates steady

Malaysia's central bank will probably stand pat on interest rates at its meeting on Thursday as inflation remains benign, but may consider a hike later in the year when prices begin to climb at a faster pace, a Reuters poll showed.

A surprisingly strong fourth quarter will also strengthen the case for keeping the overnight policy at 3 per cent, all 15 economists surveyed for the poll said.

"The policy rate is accommodative towards growth, evidenced by Q4 GDP growth of 6.4 per cent y/y, with domestic demand offsetting the drag from the external sector and sustained double digit loan growth," said ANZ economist Daniel Wilson.

Bank Negara has held the rate steady since May 2011 but may come under pressure to tighten as disposable incomes rise and firms' operating costs increase after a minimum wage policy took effect on January 1.

Wilson said although inflation is low now, it has "troughed and risks are to the upside in H2 2013. Following the election, which will be called before 28 April, we expect the OPR be raised by 25 basis points in H2 2013." A separate Reuters poll also showed that inflation is expected to quicken later in the year, but remain within an average of 2.5 per cent. Government-controlled petrol and gas prices are expected to rise from mid-year after the elections are out of the way.

One analyst said the chances of a rate hike anytime in 2013 were slim.

"There are no strong reasons for the central bank to hike its interest rates given that inflation is likely to be manageable, while external threat still remains," RHB said in a report last week.

Within the region, Australia's central bank left its main cash rate unchanged on Tuesday following a similar decision by Thailand last month. Indonesia's central bank holds a policy meeting on Thursday and is expected to leave the rate unchanged.

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