By Shamim Adam and Michael Munoz
Oct. 22 (Bloomberg) -- Malaysia's central bank may keep its benchmark interest rate unchanged even as inflation eases, refraining from joining policy makers around the region in cutting borrowing costs to boost flagging economies.
Bank Negara Malaysia will maintain its overnight policy rate at 3.5 percent for a 20th straight meeting, according to 11 of 13 economists surveyed by Bloomberg News. Two expect a quarter-percentage-point cut. The decision is due at 6 p.m. in Kuala Lumpur on Oct. 24.
The central bank held off from raising rates this year even as inflation accelerated to a 26-year high and its neighbors tightened policy, arguing it was focused on staving off a growth slowdown. The decision to keep rates steady now gives it room to delay any action at a time when policy makers in China, India and Australia are cutting borrowing costs.
``Having been the only central bank in the region not to hike rates this year, Bank Negara will likely argue monetary conditions remain extremely accommodative, and there is no need for easing,'' said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. ``Bank Negara will probably need to see decisive signs of a sharp economic slowdown in the data before it decides to cut rates.''
Malaysia's overnight policy rate, introduced in April 2004, is the third lowest in Asia outside Japan. Only Hong Kong and Taiwan have lower borrowing costs.
September Inflation
Consumer prices probably rose 8.1 percent in September from a year earlier, after gaining 8.5 percent in August, according to the median estimate of 14 economists in a Bloomberg News survey. That would be the slowest pace in three months.
Malaysia's inflation slowed in September and will no longer be a concern this month, Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad said today.
``It will be slightly better than in July and August,'' Shahrir said in a telephone interview in Kuala Lumpur. ``There will be a turning point in the September figures. To us, the inflation rate should not be a problem or something to worry about for October but growth is.''
The government will release the figures at 5 p.m. on Oct. 24, instead of today as earlier planned, according to the statistics department's Web site.
The central bank expects inflation to slow to below 4 percent before the second half of 2009 as commodity and oil prices decline, Governor Zeti Akhtar Aziz said last week. The government has reduced retail gasoline prices as crude dropped from a record level in July.
Growth Slows
Southeast Asia's third-largest economy may expand as little as 4 percent in 2009, Zeti forecasts, saying Bank Negara is ready to shift its focus to boosting growth as inflation worries ease. Economic expansion this year will probably fall below the government's official forecast of 5.7 percent, she said.
``What is very vital is the economy should not be allowed to slip into a sharp economic downturn,'' Zeti said Oct. 14. ``We have the capacity and the capability to implement fiscal, monetary and other measures to prevent such an economic downturn.''
Malaysia's export growth is slowing as electronics shipments to the U.S. and Europe decrease, while industrial production climbed at the weakest pace in 16 months in August.
The government, which plans to lower its 2009 economic- growth forecast next month from the current estimate of 5.4 percent, is introducing measures to cushion the slowdown including plans to make it easier for foreigners to invest in the country and buy property.
Monetary Easing
Malaysia may cut the benchmark interest rate to 3 percent by the end of March as the economic slowdown deepens, said Alvin Liew, an economist at Standard Chartered Plc in Singapore.
``Given the recent coordinated rate cuts by central banks around the world as well as recent statements from Zeti citing growth concerns, the risk is that monetary easing could come sooner rather than later,'' Liew said.
The following table gives economists' forecasts for Malaysia's benchmark interest rate and inflation:
Malaysia Overnight Policy Rate Estimates
-----------------------------------
Policy Meeting Oct. Nov.
Dates 24 24
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Median 3.50% 3.50%
% forecasts at Median 85% 82%
High 3.50% 3.50%
Low 3.25% 3.25%
Number of Estimates 13 11
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Action Economics 3.50% 3.50%
Aseambankers 3.50% 3.50%
Bank Islam Malaysia 3.50% 3.25%
Barclays Capital 3.25% 3.25%
Citi 3.50% --
Credit Suisse 3.50% 3.50%
DBS Group 3.50% 3.50%
HSBC 3.25% --
JP Morgan Chase 3.50% 3.50%
Kenanga Investment 3.50% 3.50%
Moody's Economy.com 3.50% 3.50%
Standard Chartered 3.50% 3.50%
UOB Group 3.50% 3.50%
-----------------------------------
Malaysia CPI Estimates
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CPI 4Q Avg. Avg.
Firm YoY YoY 2008 2009
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Median 8.1% 7.3% 5.8% 4.1%
Average 8.1% 7.0% 5.8% 4.2%
High 8.4% 8.0% 6.0% 5.5%
Low 7.3% 3.1% 5.0% 3.0%
Number of Estimates 14 11 11 10
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Action Economics 8.0% 7.9% 6.0% 4.5%
Aseambankers 8.2% 8.0% 6.0% 4.7%
Bank Islam Malaysia 8.1% 7.0% 5.8% 3.8%
Barclays Capital 8.0% -- -- --
Capital Economics Ltd. 8.0% -- -- --
Citi 8.1% -- -- --
Credit Suisse 8.3% 7.1% 5.8% 4.2%
DBS Group 7.3% 3.1% 5.0% 3.0%
HSBC 8.3% 7.7% 5.9% 5.5%
JP Morgan Chase 8.3% 6.7% 5.8% 3.9%
Kenanga Investment 8.4% 7.8% 6.0% 3.9%
Moody's Economy.com 8.0% 6.6% 5.6% --
Standard Chartered 8.0% 7.4% 5.8% 4.0%
UOB Group 8.2% 7.3% 5.9% 4.3%
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To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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