Bank Negara leaves interest rates unchanged at 3.5%

Bank Negara has maintained its overnight policy rate (OPR) at 3.5% in line with market expectations.

The decision comes on the heels of a slowdown in inflation and growing global economic growth concerns.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said although growth was a major concern now, the current interest rate level was “supportive” as inflation had begun to moderate.

“A cut in the rate would have excarberated pressure on the ringgit, given the current weakness in the local unit,” he said, adding that an unchanged OPR would boost consumer and business confidence.

Yeah is predicting the benchmark interest rate to be kept unchanged this year.

“A cut could take place early next year although this would largely depend on the global markets,” he said. “This (OPR being maintained) is within our expectations,” CIMB Re­­search chief economist Lee Heng Guie said. “I think that Bank Negara is awaiting more (pertinent) economic data from global markets before cutting our benchmark interest rate.”

In a statement yesterday, the central bank said the focus of policymakers was now on restoring the functioning of the international financial markets and avoiding a sharp global economic downturn.

“While the downside risks to global growth have increased significantly, concerns about inflation have subsided as commodity and energy prices declined, and as slower growth sets in.

“In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,” it said.

Bank Negara has kept rates on hold this year even as inflation raced to a 26-year high in July. Inflation has since eased off along with the easing of petrol prices in the country.

Prices of fuel and certain foods are expected to drop further, given that crude oil is now more than 50% off its record of US$147.27 per barrel.

“Inflation has now peaked and is expected to moderate into 2009,” it said.