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Malaysia's Central Bank Expected to Hold Interest Rates Steady

7 Nov 2017 6:25 am
By Yantoultra Ngui 

KUALA LUMPUR, Malaysia--Malaysia's central bank is likely to leave its benchmark interest rate unchanged Thursday, as the country's economic growth and inflation are expected to remain well within its expectations.

All 10 economists surveyed by The Wall Street Journal expect Bank Negara Malaysia to hold its overnight policy rate at 3.00%. The central bank previously cut its policy rate in July 2016.

"Current inflationary pressures are very much driven by adjustments in input costs such as fuel and imported items," Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia, said in an interview.

"Meanwhile, the risks of financial imbalances arising from higher household indebtedness are pretty much contained currently," he said. "Therefore, the prevailing OPR level can be retained in 2017."

Malaysia's inflation picked up for the second straight month in September on higher transportation and food costs. The consumer-price index rose 4.3% from the previous year, compared with a 3.7% increase in August.

Exports, however, grew at a slower-than-expected pace in September, rising 14.8% from a year earlier. That suggests a potential slowdown in economic growth in the fourth quarter--strong exports helped Malaysia's economy expand 5.8% in the second quarter, its fastest pace in more than two years. Third-quarter gross domestic product data will be released Nov. 17.

In an annual economic report released October, the Malaysian government projected decelerating export growth should nudge down overall economic expansion to 5.0%-5.5% in 2018. The government last month revised its economic-growth forecast to 5.2%-5.7% for this year, compared with an earlier official estimate of between 4.3% and 4.8%.

According to the report, inflation is expected to slow to between 2.5% and 3.5% next year from an estimated 3.0%-4.0% in 2017, suggesting that the central bank won't be in a rush to tighten policy for some time.

The ringgit, meanwhile, has gained some 6% against the U.S. dollar so far this year, lifted by encouraging domestic macroeconomic conditions and measures introduced by the central bank since the end of 2016 to support the currency. The ringgit was hit after Donald Trump won the U.S. presidential election in November last year.

Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

(END) Dow Jones Newswires

November 07, 2017 01:25 ET (06:25 GMT)

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