Malaysian inflation slows more than expected

MALAYSIAN inflation fell more than expected in November, possibly giving the central bank more room to cut interest rates again to support the export-dependent economy in the face of global economic downturn.

Consumer prices rose 5.7 per cent in November from a year earlier, far less than analysts' 6.7 per cent forecast in a Reuters poll, and sharply down from a 7.6 per cent rise in October, according to data from the Department of Statistics.

"If inflation continues to ease at this rapid pace, this should give the Bank Negara Malaysia more room for ...cutting the Overnight Policy Rate to support growth," said Standard Chartered economist Alvin Liew.

The fall in inflation mirrors that seen elsewhere in Asia and largely reflects the sharp fall in oil prices which have fallen 70 per cent from their peak earlier this year.

The government has cut petrol prices by a cumulative 33 per cent since it slashed subsidies to rein in a surging budget deficit in June, causing petrol prices to rocket by 41 per cent.

"Among the contributing factors to this decline is the reduction in the price of petrol and diesel announced by the government on November 1 and November 18 2008," the statistics department said in a statement.

Malaysian interest rates stand at 3.25 per cent after a quarter point cut in November, which the central bank said was prompted by the weakening growth outlook for the country which is highly geared to exports.

The government lowered its growth forecast for 2009 to 3.5 per cent from 5.4 per cent last month, though most private sector forecasts are much more pessimistic and a recent Reuters poll of 12 economist showed the expectation was for three per cent growth, the lowest since 2001.

Most economists expect a cumulative 50 basis point in cuts next year. Standard Chartered's Liew said he originally expected two 25 basis points cuts.

"But with the rapid worsening of the Malaysia export outlook and the aggressive easing bias by regional and G3 central banks, there is a risk that BNM may front load the cuts in the first meeting next year."

The central bank meets in late January for the first of eight monetary policy meetings it has in a year. - Reuters