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No peer pressure: Why Malaysia won't join EM rate hikes

While recent market turmoil may have sparked a rate-hike trend among emerging market central banks, one Asian economy could buck the trend and stay pat for the rest of the year.

Despite the ringgit hovering near a four-year low as a result of the ongoing selloff in emerging markets, Bank Negara Malaysia left its overnight policy rate (OPR) unchanged at 3 percent for a 16th straight meeting on Wednesday. The decision stands in stark contrast to Turkey's shocking 425 basis point rate rise, South Africa's 50 basis point increase and India's surprise 25 basis point hike.

(Read more: Investors rebel against rate hikes in South Africa, Turkey)

The general consensus is for Malaysia to hike rates this year, but OCBC Bank has a contrarian call.

STR | AFP | Getty Images

"We see Bank Negara adopting a wait-and-see attitude and a good chance that, for all the rate hike hoopla of late, it might well keep the OPR rate unchanged at 3 percent for the whole of this year," said Wellian Wiranto, economist, treasury research and strategy, global treasury at OCBC.

(Read more: Can Malaysia's shares continue to march higher?)

That view opposes the 25 to 50 basis point increase expected by a raft of analysts due to rising inflationary pressures. Last month, annual headline inflation spiked to a two-year high as the effects of the government's fuel subsidy cut filtered through the economy.

"Inflation is likely to continue to creep up, especially with the electricity tariff hikes that commenced this month. We are forecasting CPI inflation to average 3 percent in 2014, from 2.1 percent in 2013, wrote economists at Goldman Sachs in a note. They anticipate a 50 basis point hike in the third quarter.

BNP Paribas and Citi Research meanwhile, expect a 25 basis point hike in March and May, respectively.

(Read more: Is Malaysia's property market headed for a Dubai-style crash?)

But OCBC's Wiranto dismisses claims of inflationary pressure, pointing out that the central bank itself downplayed the issue.

"Our sense is that Bank Negara is still fairly relaxed about the recent uptick in prices. This is particularly so, when we notice how it appears to judge that low global commodity prices and relatively subdued domestic demand will act as worthy counterbalances to any second round-effect of recent domestic price increases," Wiranto said.

To boot, Bank Negara said in its monetary policy statement that subdued external price pressures and moderate domestic demand conditions will help to contain underlying inflation.

(Read more: Chance of default for Malaysia minimal: Prime Minister)

"We have been highlighting the fact that Bank Negara is one central bank which has traditionally stressed the importance of not reacting robotically to inflation uptick, but rather to identify the true nature of inflation before acting. Today's statement suggests that it is still of the view that the inflation is not of the demand-led kind, but of a largely cost-push one that do not require blind hikes," Wiranto concluded.

By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC

Correction: An earlier version of the story incorrectly stated that BNP and Citi expect a 25 basis point cut in March and May. It should, in fact, be a rate hike.

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