Published October 29, 2009

Central bank holds interest rates steady

Borrowing costs kept at record low to aid recovery

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(KUALA LUMPUR) Malaysia's central bank refrained from raising interest rates, opting to keep borrowing costs at a record low to support a nascent economic recovery.

Bank Negara Malaysia kept its overnight policy rate unchanged at 2 per cent for a fifth straight meeting yesterday, it said in a statement in Kuala Lumpur. The decision was predicted by all 21 economists surveyed by Bloomberg News. The benchmark is at its lowest level since it was introduced in April 2004.

'The international economic and financial conditions have improved further,' the central bank said. 'Notwithstanding these improvements, the outlook for the global economy continues to be uncertain, with recovery likely to be slow and uneven in view of the ongoing adjustments.'

Asian policymakers from India to South Korea have begun to signal they may be prepared to raise interest rates as inflation returns with economic recovery. Malaysia has less reason to follow Australia's Oct 6 move to increase borrowing costs anytime soon because consumer prices are declining and the nation is still in a recession, economists say.

'Bank Negara still views growth concerns as the greater risk to macroeconomic stability and should signal its preference to stay on hold for the foreseeable future,' said Matt Hildebrandt, an economist at JPMorgan Chase & Co in Singapore.

Malaysia's inflation is 'muted' and 'uncertainties about the growth outlook are still high', he said.

The ringgit fell to 3.4281 per US dollar, its lowest level in three weeks, and Malaysia's benchmark stock index slid yesterday as concern that a global economic recovery is faltering hurt demand for emerging-market assets. Confidence among US consumers unexpectedly declined for a second month in October, a report showed on Tuesday.

'With improving domestic economic conditions, and as price pressures and inflationary 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 to economic activity,' the central bank said.

One out of 19 economists surveyed by Bloomberg News expects the central bank to raise interest rates in the first quarter of 2010. The benchmark rate may increase to 2.25 per cent in the third quarter, according to the median forecast of 17 economists. -- Bloomberg