Finance news

Malaysia's central bank expects slowing economic growth to cool inflation, fueling speculation borrowing costs won't be raised to cap prices.

Inflation will “moderate'' in 2009, particularly in the second half of the year, Governor ZetiAkhtar Aziz told reporters in Kuala Lumpur today. Bank Negara Malaysia's goal is to avoid a “fundamental'' economic slowdown, she said.

“This is a pretty strong indication that the overnight policy rate will remain unchanged at least until the end of the year,'' said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur. “The concern of an economic slowdown seems to preoccupy policy makers slightly more than risks of runaway inflation.''

Malaysia's central bank last month unexpectedly left interest rates at 3.5 percent, even after inflation reached a 26-year high fast cash. Higher borrowing costs may weigh on domestic spending in Malaysia, which is relying on the consumer to power the economy as a U.S. slowdown hurts demand for the Asian nation's exports.

The central bank is due to release its next monetary policy statement on Aug. 25. Inflation in June was 7.7 percent. Malaysia last raised its benchmark interest rate in April 2006.

Zeti also said swings in the value of Malaysia's ringgit have reflected major currency changes and any intervention by the central bank will be done to maintain “orderly market conditions.''

“We will not be intervening to affect the underlying trend of the currency,'' she said.

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