Malaysia c.bank holds policy rate as expected, highlights risks to growth
KUALA LUMPUR, Sept 5
KUALA LUMPUR, Sept 5 (Reuters) - Malaysia's central bank left its key interest rate unchanged at 3.00 percent on Thursday as expected, but warned that the outlook for growth and inflation has become more uncertain.
Bank Negara Malaysia's monetary policy committee said that inflation remained benign at 1.7 percent in the first seven months this year, but would likely increase in coming months partly due a cut this week in fuel subsidies.
"The increase in inflation, however, is from a low level and will be mitigated by a stable external price environment, expansion in domestic capacity and moderate domestic demand pressures," the central bank said in a statement.
Malaysia's economic growth will continue to be underpinned by domestic activity, helped in part by large infrastructure projects, the bank said, but added that risks in the global economy and international financial markets could dent prospects.
The government this week reduced fuel subsidies for the first time since December 2010 as it looked to improve the country's fiscal position, which had spurred capital outflows.
The move came after saw Malaysia's trade-reliant economy incurred a huge dent to its current account balance in the second quarter. The surplus narrowed to 2.6 billion ringgit ($791.12 million) from 8.7 billion ringgit in the first three months of 2013.
The central bank's statement made no specific mention of the ringgit, which has weakened more than 7 percent this year against the dollar. It noted that the reversal of capital flows from emerging economies flows "has resulted in the depreciation of emerging market currencies."
Bank Negara has kept the overnight policy rate on hold since May 2011 to boost domestic consumption and combat weakness in the country's major export markets for commodities and electronics.
Since then, it has reiterated that 3 percent is still supportive of the economy.
All 16 economists polled by Reuters expected Bank Negara to keep the benchmark interest rate unchanged as resilient domestic demand continues to fuel economic activity and inflation stays low.
For the full central bank monetary policy statement, click on
For a graphic of Malaysia's inflation and overnight policy rate, please see: link.reuters.com/jem28s (Reporting by Anuradha Raghu and Siva Sithraputhran; Editing by Richard Borsuk)
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