Finance & Business World

Malaysia's industrial production grew at the slowest pace in 10 months in June, and the central bank said it wants to avoid a “fundamental'' worsening in the economy, signaling it may avoid raising interest rates.

“What we need to be very aware of is that there will be a moderation in growth,'' Bank Negara Malaysia Governor Zeti Akhtar Aziz said in Kuala Lumpur today. “Our objective is to avoid slipping into a fundamental economic slowdown'' that results in increased unemployment.

Production at factories, utilities and mines rose 2 percent in June from a year earlier, the Putrajaya, Malaysia-based Statistics Department said today. Manufacturing output by companies including Malaysian Pacific Industries Bhd. grew 2.6 percent, slowing from the previous month's 4.1 percent gain.

Orders for electronics produced by Intel Corp. and other manufacturers in Asia may weaken further as a U.S. slowdown spreads to economies including Japan, where exports fell for the first time in more than four years in June. Commodities sales, which have been holding up Malaysian exports this year, may also ease as palm oil and crude oil prices fall from records.

“Malaysia may have to brace itself for a more challenging macroeconomic environment in the second half,'' 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.''

Benchmark Rate

Rising risks of a deepening economic slump prompted Bank Negara to keep its benchmark interest rate unchanged at 3.5 percent on July 25, avoiding the increases in borrowing costs undertaken by its neighbors to fight inflation this year payday loans application.

Zeti's comments today are “a pretty strong indication'' that Malaysia will keep its overnight policy rate unchanged at least until the end of the year, Azrul said.

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.

Growth in 2008 may fall below Bank Negara's March forecast of as much as 6 percent, Zeti said last month. The government is due to release updated forecasts on Aug. 29. The $151 billion economy grew 6.3 percent last year.

Governments from South Korea to Thailand have lowered their 2008 economic forecasts as the impact of the U.S. slowdown spreads and soaring oil and food prices hurt spending. Singapore last week cut its 2008 growth forecast for a second time this year, and today said full-year exports may decline for the first time since 2001.

Electronics Sales

Manufacturing accounts for more than 30 percent of Malaysia's economy, and almost four-fifths of the country's exports. Sales to the U.S., the Southeast Asian nation's largest overseas market last year, fell for the 15th month in 16 in June on lower shipments of electrical and electronics products.

“While commodities-related production could partially offset the expected slowdown in technology production, downside risks have emerged from the recent slide in commodities prices,'' said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore.

Source