Malaysia Central Bank Seen Holding Rates Steady This Week, WSJ Survey Shows

By Yantoultra Ngui Features Dow Jones Newswires

KUALA LUMPUR, Malaysia--Bank Negara Malaysia is expected to keep its benchmark interest rate unchanged Thursday, a poll showed, despite strong first-quarter economic growth and inflation above the central bank's target range.

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All 11 of the economists surveyed by The Wall Street Journal since Monday expect Bank Negara Malaysia's monetary-policy committee to hold its overnight policy rate at 3.00%. The central bank most recently cut the benchmark interest rate in July 2016, from 3.25%.

"With inflation having exceeded the central bank's target range of 3.0% to 4.0%, BNM is unlikely to cut rates to boost growth as doing so would also stoke inflationary pressures," Imran Nurginias Ibrahim, economist at BIMB Securities, said. At the same time, higher rates would lead to a tightening of credit conditions and could undermine growth, he added.

The rate of inflation in the Southeast Asian country accelerated at an annual pace of 5.1% in March, its highest since late 2008, owing to the low base last year and gains in retail fuel prices. However, it has since eased, to 4.4% in April and 3.9% in May.

This follows the recent strong momentum in manufacturing and exports that have helped Malaysia's economy expand by 5.6% in the first three months of 2017, its fastest pace in two years.

Exports in May jumped at a faster-than-expected pace of 32.5% from a year earlier--the strongest expansion in more seven years--on strong shipments of electrical and electronics products, palm oil and crude petroleum, according to data released last week.

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Some economists said growth should taper somewhat in coming months. Also, inflation looks as if it has already peaked and the rate should descend toward 3.0% by year's end, they said.

However, given this year's strong base and the prospect of national elections, which are due by August 2018, upside risks remain, according to some economists.

"We acknowledge the risks for OPR (overnight policy rate) have tilted to upside especially for 2018 should the external condition remain conducive for growth," Mohd Afzanizam Abdul Rashid, chief economist at Kuala Lumpur-based Bank Islam Malaysia, said.

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

(END) Dow Jones Newswires

July 11, 2017 00:58 ET (04:58 GMT)