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UPDATE 1-Malaysia c.bank holds rates, flags hot money risks

By Liau Y-Sing KUALA LUMPUR, Nov 12 (Reuters) - Malaysia's central bank kept interest rates unchanged on Friday and warned of risks from large capital flows, although economists said it was unlikely to impose any immediate curbs on hot money. Bank Negara held its key overnight policy rate at 2.75 percent as expected for the second meeting in a row, after hiking three times this year on the back of strong economic growth. "Monetary policy continues to remain accommodative and supportive of economic growth," Bank Negara said in a statement. "While domestic financial conditions remain orderly, greater vigilance will be accorded to the potential risks arising from large and volatile capital flows." A Reuters poll of economists had forecast that the central bank would skip a rate hike in November and resume tightening next year as price pressures pick up. Peck Boon Soon, an economist at RHB, said the central bank was unlikely to impose capital controls soon despite flagging the risks from hot money flows. "I suppose they will tolerate slightly higher inflows," Peck said. "If you look at the inflow of foreign funds in fixed income papers, it stood at 115 billion ringgit at the end of September, almost quite close to the previous peak in April 2008 of 126 billion ringgit," he said. The Malaysian ringgit has risen about 10 percent versus the dollar this year, making it Asia's third-biggest gainer against a broadly weakening greenback. Asian economies are bracing for more hot money to flow into the region as the U.S. Federal Reserve maintains an ultra-loose monetary policy. Neighbouring Indonesia has imposed rules to push money out of the short-term central bank debt market, preferred by foreign speculators. South Korea is mulling ways to ease excessive swings in cross-border capital flows including levying a tax on non-deposit foreign currency debt at banks. Malaysia pegged its currency to the dollar in 1998 to help its economy heal from a regional financial crisis. It has lifted the peg but some analysts said the move wrong-footed investors and many remain wary of government interference in capital markets. Asian central banks such as Indonesia have kept rates on hold on concerns that the region will see more capital inflows. But Australia and India lifted borrowing costs this month to rein in inflation. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Southeast Asia rates: http://link.reuters.com/ded25q ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ In its review of the economy on Friday, the Malaysian central bank said growth moderated in the third quarter although favourable employment conditions and firm commodity prices would support growth. "Prices are expected to rise at a modest pace in the coming months in view of the rising global commodity and food prices," it said. "Inflation is however expected to remain moderate going into 2011." The stock market had finished trading when the rate decision was announced. Malaysian economic growth eased to 8.9 percent on year in the second quarter from a 10-year high of 10.1 percent in the first quarter as global demand for its exports moderated. Inflation stood at 1.8 percent in September. MALAYSIAN CENTRAL BANK RATE DECISIONS: Date Action (bps) To (OPR, pct) -------------------------------------------------- Nov 12, 2010 no change 2.75 Sept 2, 2010 no change 2.75 July 8, 2010 up 25 2.75 May 13, 2010 up 25 2.50 Mar 4, 2010 up 25 2.25 Jan 26, 2010 no change 2.00 Nov 24, 2009 no change 2.00 Oct 28, 2009 no change 2.00 Aug 25, 2009 no change 2.00 July 29, 2009 no change 2.00 May 26, 2009 no change 2.00 Apr 29, 2009 no change 2.00 Feb 24, 2009 Down 50 2.00 Jan 21, 2009 Down 75 2.50 Nov 24, 2008 Down 25 3.25 (Additional reporting by Loh Li Lian; Editing by Hugh Lawson) Keywords: MALAYSIA ECONOMY/RATES (royce.cheah@thomsonreuters.com; +603 2333 8040; Reuters Messaging; royce.cheah.reuters.com@reuters.net; bureau email: areuters@gmail.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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