Bank Negara holds policy rate steady

Malaysia's central bank left its key interest rate unchanged at 3.00 per cent on Thursday as expected, but warned that it expects inflation to edge up over the coming months driven by domestic cost pressures.

However, Bank Negara Malaysia's monetary policy committee said in a statement that the outlook for inflation is expected to be tempered by a host of factors including stable external prices as well improvements in food production and distribution.

Annual inflation accelerated to 2.6 per cent in September, a 20-month high, due to a hike in petrol prices as the government cut fuel subsidies. August's annual inflation rate was 1.9 per cent.

Malaysia's policy rate has been steady since mid-2011, and all 11 economists in a Reuters poll expected the central bank to keep it unchanged. Most analysts expect no rate change until the second half of 2014.

The central bank said Malaysia's economy will benefit from an "expected improvement in the external sector amid some moderation in domestic demand."

"Domestic investment activity will however continue, led by private sector capital spending and the ongoing implementation of infrastructure projects," it added.