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INSTANT VIEW 3-Malaysia cbank holds rates, warns of capital flow

KUALA LUMPUR, Nov 12 (Reuters) - Malaysia's central bank kept interest rates unchanged on Friday, citing tame inflation and slower growth and warned of the risks arising from large capital flows into the region. As expected, Bank Negara held the key overnight policy rate at 2.75 percent for the second meeting in a row, after hiking three times this year on the back of strong economic growth. ********************************************************* KEY POINTS: For story on interest rate decision, double click on For text of central bank decision, double click on COMMENTARY: LEE HENG GUIE, HEAD OF ECONOMICS, CIMB INVESTMENT BANK: "Bank Negara continues to err on the side of boosting growth amid signs of weaker global recovery and slowing domestic growth momentum. And from there also clearly inflation remains benign and that has given the central bank flexibility to keep the current accommodative interest rate. "However we think Bank Negara will remain vigilant on potential debt finance asset bubbles going forward as liquidity inflows and credit conditions may fuel excessive credit creation to the unproductive sectors. The MPC statement acknowledges the potential risk coming from the volatile capital flows that posts a threat to macroeconomic and financial stability. We're sticking to our view that rates will be raised in the second half of next year." JOANNA TAN, ECONOMIST, FORECAST: "While regional counterparts are scrambling to act on inflationary pressures, Bank Negara has already frontloaded 75 bps worth of rate hikes in the earlier part of the year and recent data showed that inflation is still within manageable levels. In light of the moderating recovery, a rate pause seems like the best action to take for now. We expect that the central bank will steer policy in a neutral gear into the new year while keeping a watch on growth risks. Rate hold could extend to Q2 next year." MANOKARAN MOTTAIN, ECONOMIST, AMINVESTMENT BANK "Within expectations. I think it is the right kind of policy adopted. I think capital flows is not alarming now to require any kind of controls on that side. My guess for the next hike will be in May, by then we will already see some stability." (Reporting by Loh Li Lian, Razak Ahmad and Royce Cheah, editing by Liau Y-Sing) ((y-sing.liau@thomsonreuters.com; +603 2333 8083; Reuters Messaging: y-sing.liau.reuters.com@reuters.net)) Keywords: MALAYSIA ECONOMY/VIEW (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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