By www.CentralBankNews.info Malaysia’s central bank kept its benchmark Overnight Policy Rate (OPR) steady at 3.0 percent, as widely expected, saying its policy stance remains supportive of growth while inflation is contained.
Bank Negara Malaysia (BNM), which has held its policy rate unchanged since June 2011, said data showed that the domestic economy had expanded at a robust pace in the fourth quarter of 2012, driven by sustained domestic consumption and investments with some improvement in the external sector.
This year, the central bank expects domestic demand to continue to expand with private consumption supported by higher income and stable employment while investments will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and infrastructure.
The global economy, which is showing signs of improvement, albeit at an uneven pace, will provide additional support to Malaysia’s economy, BNM said, adding there were still downside risks to the prospect for global growth.
“The MPC considers the current stance of monetary policy to be supportive of the economy while inflation remains contained,” the bank said after a meeting of its Monetary Policy Committee.
Malaysia’s inflation rate has been trending downward since mid-2011 to hit 1.2 percent in December, the lowest since February 2010, and below November’s 1.3 percent.
For 2012, inflation averaged 1.6 percent, down from 2011′s 3.2 percent, but the central bank expects inflation to pick up this year. However, inflation should still remain modest, the BNM said, as some global food prices and domestic factors push up prices.
“Nevertheless, given modest global growth prospects, pressures from global commodity prices is expected to be contained,” the central bank said.
Malaysia’s economy has been expanding largely at the same pace in the last couple of years, with gross Domestic Product up by 3.3 percent in the third quarter from the second quarter for an annual rate of 5.2 percent, down from 5.6 percent, but up from the first quarter’s 5.1 percent.
Economists expect the BNM to hold interest rates steady during the first half of this year but then to raise rates in the second half as inflationary pressures start to rise, expectations that are likely to strengthen given the central bank’s reference to keep its current policy stance while inflation is contained.
Malaysia’s economy is expected to expand by 4.5-5.5 percent in 2013.