Malaysia's central bank kept its key interest rate unchanged at 3.00 percent at its last monetary policy meeting for 2011 on Friday, but warned of risks to growth as some analysts predicted a possible easing next year. Bank Negara joins Bank of Korea in keeping rates on hold, whereas central banks in Indonesia and Brazil have already switched policy to boosting growth from fighting inflation as the global slowdown threatens exports.
"The global economic outlook is expected to be weaker and international financial market conditions will remain highly uncertain and volatile going forward," Bank Negara said in a statement. "The monetary policy committee will continue to monitor these developments and assess the risks to the outlook for domestic growth and inflation." All 13 economists in a Reuters poll had forecast Bank Negara would keep the overnight policy rate on hold although some markets are pricing in a rate cut in the first quarter of 2012.
"The risks for Malaysia have definitely increased. Growth has started to slow in the second quarter and industrial production data points to continued lacklustre growth in the manufacturing sector in the third quarter," said Ho Woei Chen, economist with United Overseas Bank. "There is definitely a better chance for a rate cut next year when headline inflation will drop below 3.0 percent, and the first half of next year there is a possibility if external conditions continue to deteriorate." Bank Negara was the first Asian central bank to lift borrowing costs in 2010. It increased rates three times in 2010 and again in May this year to 3.00 percent and has since paused at the subsequent two meetings.
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