Inflation in January slows to eight-month low

INFLATION in Malaysia slowed to an eight-month low in January, paving the way for another interest rate cut as early as next week to shield the economy from the global downturn.

The consumer price index rose 3.9 per cent in January from a year earlier, down from 4.4 per cent growth in December on lower transport costs, according to data yesterday.

The reading was in line with economists' forecast in a Reuters poll and the lowest since May when it stood at 3.8 per cent.

"The combination of a lower inflation print and ugly numbers in exports and industrial production may just nudge Bank Negara Malaysia to cut rates," said Forecast economist Joanna Tan.

Exports dropped 14.9 per cent in December from a year earlier, their steepest drop in seven years, while factory output fell the most in 15 years during the same period as demand from key trading partners plunged in the face of the crisis.

The slowing inflation in Malaysia is in line with the trend in the region, which has allowed central banks to ease policy to support rapidly slowing economies.

Malaysia's central bank, which slashed its policy rate by 75 basis points to 2.5 per cent at its Janaury 21 meeting, is expected to cut again, possibly as early as Tuesday.

Central bank governor Tan Sri Dr Zeti Akhtar Aziz has said Bank Negara "front loaded" its interest rate cuts, but many analysts feel the risk of recession is serious enough to warrant further cuts.

The central bank changed rates for the first time in two- and-a-half years in November, slashing them by 25 basis points, on rising concern over economy.

It cut again in January but the global slowdown has more than offset the easing in policy.

The latest growth data, due next Friday, is expected to show annual expansion slowing to its weakest pace in seven years in the fourth quarter. - Reuters