March 5, 2019 / 8:22 AM / 4 months ago

UPDATE 1-Malaysia's c.bank holds key rate, sees 'steady' growth path

* C.bank keeps key rate at 3.25 pct, as expected

* External sector seen softening on moderating global growth

* C.bank likely to cut key rate in Q3 - Capital Economics

KUALA LUMPUR, March 5 (Reuters) - Malaysia’s central bank kept its key interest rate unchanged on Tuesday, as expected, expressing confidence that the economy can stay on a “steady growth path” despite multiple risks.

Bank Negara Malaysia (BNM) left the overnight policy rate at 3.25 percent.

At that level, it said, monetary accommodativeness “is consistent with the intended policy stance”.

All 13 economists polled by Reuters had forecast BNM would hold its benchmark rate.

BNM raised its key rate in January 2018 by 25 basis points to “normalise” monetary policy. It was the first increase since 2014, and the first rate change since July 2016’s 25 basis point cut on uncertainty surrounding Britain’s Brexit vote.

The central bank outlined continued risks from unresolved trade tensions, heightened uncertainties on the global and domestic fronts and prolonged weakness in commodity-related sectors.

“Support from the external sector is expected to soften, in tandem with the moderating global growth momentum,” it said.

Malaysia’s full-year 2018 growth was 4.7 percent, just below the government’s 4.8 percent forecast but far below 2017’s 5.9 percent.

The government forecasts 2019 growth of 4.9 percent.

CHALLENGING OUTLOOK

Malaysia reported better-than-expected export growth of 3.1 percent in January, but it was slower than the previous month on falling palm oil shipments.

Demand for Malaysian exports has been resilient, but the U.S.-China trade war remains a major factor that could weigh on Malaysia’s growth, economists say.

Views on the course ahead for interest rates vary.

Julia Goh, a Malaysia-based economist with UOB Bank, said Tuesday’s statement had “a stable tone, although we sense a little bit of a dovish growth outlook” depending on how the United States-China trade dispute plays out.

Capital Economics said BNM may need to cut its rate in the third quarter as the country faces weak price pressures and a poor growth outlook.

Growth is expected to slow to 4 percent this year, “with weaker exports and tighter fiscal policy likely to act as the main drags on the economy,” the consultancy said in a note.

“We think it is only a matter of time before the central bank starts to loosen monetary policy.”

OCBC, in a note before Tuesday’s decision, said it sees BNM as “static for 2019, even if a preference for a more dovish policy inclination may start to emerge”.

The central bank expects inflation to be broadly stable compared to last year, dependent on global oil prices.

Full-year headline inflation rose 1.0 percent in 2018. The consumer price index fell 0.7 percent in January from a year earlier, the first decline since November 2009. ($1 = 4.0760 ringgit)

Reporting by Joseph Sipalan; Editing by Richard Borsuk

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