Published April 23, 2009

Malaysian inflation down to 11-month low

Consumer prices in March rose 3.5%, offering scope for more interest rate cuts

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(KUALA LUMPUR) Malaysia's inflation slowed to an 11-month low last month, giving the central bank room to add to three successive interest-rate cuts and help revive growth.

Consumer prices rose 3.5 per cent from a year earlier, after a 3.7 per cent gain in February, the Putrajaya-based statistics department said in a statement yesterday.

That compares with the median forecast for a 3.6 per cent increase in a Bloomberg News survey of 15 economists.

Cooling commodity prices and slowing demand have damped inflation across Asia, allowing policy makers to cut borrowing costs to counter the global recession.

Malaysia's Prime Minister Najib Razak has unveiled two stimulus plans to bolster an economy that he says may contract as much as one per cent this year.

'There's a need to boost domestic demand, not just public spending, but also consumer and business spending, as exports are unlikely to be a source of growth anytime soon,' said Suhaimi Ilias, chief economist at Maybank Investment Bank Bhd in Kuala Lumpur.

He expects the central bank to lower its key interest rate to 1.5 per cent by the end of the year.

Malaysia's central bank, which has reduced its benchmark overnight rate by 1.5 percentage points to 2 per cent since last November, next meets to review its monetary policy on April 29.

Governor Zeti Akhtar Aziz said last Thursday that fiscal stimulus and monetary policy will 'sustain and support' domestic demand.

Still, Ms Zeti said that as interest-rate reductions had been 'frontloaded' and the local cost of financing was at 'historical lows', Bank Negara Malaysia is focused on improving access to financing.

Food prices rose 8.8 per cent in March after climbing 9.2 per cent the month before.

The cost of transportation fell 2.1 per cent, a fourth month of decline.

Housing, utilities and fuels gained 1.4 per cent, slowing from the previous month.

Malaysia's inflation may slow further in the coming months as food prices fall, Ismail Sabri Yaakob, Minister for Domestic Trade and Consumer Affairs, said yesterday.

The government will spend RM1.02 billion (S$422 million) on subsidies this year to keep flour, sugar and bread prices low, he said. -- Bloomberg