Malaysia holds key rate at 3.00 pct, says inflation modest

KUALA LUMPUR Thu May 9, 2013 6:12am EDT

KUALA LUMPUR May 9 (Reuters) - Malaysia's central bank left its key interest rate unchanged at 3.00 percent on Thursday, in line with expectations, saying inflation is expected to remain benign for the rest of the year.

Bank Negara has held steady since May 2011 to spur growth of the trade-reliant economy as it struggles with weak overseas markets.

"While inflation is expected to continue to rise during the year, it is projected to remain modest," the central bank's monetary policy committee said in a statement.

The consumer price index rose 1.6 percent in March from a year earlier.

"Going forward, the domestic economy is expected to sustain a steady growth," the central bank added.

First quarter gross domestic product data is due on May 15. The central bank expects growth at 5-6 percent as strong domestic demand continues to powers growth, but warned earlier that re-emerging euro zone instability could slam on the brakes.

Factory output contracted a worse-than-expected 0.2 percent in March from a year ago, data released earlier on Thursday showed, underlining the headwinds the economy continues to face.

For the full central bank monetary policy statement, click on (Reporting by Anuradha Raghu; Editing by Sanjeev Miglani)