Published August 26, 2008

M'sia keeps key rate unchanged at 3.5%

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(KUALA LUMPUR) Malaysia's central bank left its key rate on hold at 3.50 per cent yesterday, the same level it has been at since April 2006, despite inflation hovering near 27-year highs.

Bank Negara Malaysia is the only major central bank in emerging Asia not to have responded to rising inflationary pressures and said it expected inflation to be elevated this year and early next year.

'Domestic inflation is expected to remain high for the remaining part of 2008 and going into early 2009, primarily reflecting the first-round effects of the adjustments in energy prices and the higher commodity and food prices,' the central bank said in a statement.

Analysts in a Reuters poll yesterday had been split on whether the central bank would hold or raise rates after data on Friday showed annual inflation hit 8.5 per cent in July, way above forecasts of 7.8 per cent and above June's 7.7 per cent.

Malaysia's rate meeting kicks off a series of decisions this week from central banks in Asia. Thailand is expected to raise rates 25 basis points a Reuters poll showed, and the Philippine central bank has signalled it is ready to hike rates further.

The Malaysian ringgit has fallen 2 per cent this year against the ailing US dollar, and despite a healthy current account surplus, has underperformed every major emerging Asian currency except the Korean won, Philippine peso and Indian rupee. -- Reuters