KUALA LUMPUR (Nikkei Markets) -- Malaysia's exports grew faster-than-expected in July thanks to stronger shipments of electronics and robust demand from China, offering policymakers some relief amid simmering Sino-U.S. tariff row.
Still, Bank Negara Malaysia cautioned of near term risks arising from the heightened trade tension after it held the benchmark interest rate unchanged at 3.25% on Wednesday, citing steady economic growth and stable underlying inflation.
Economists said Malaysia's central bank will likely stand pat on interest rates for the rest of 2018 despite headline inflation edging higher and the Southeast Asia's third-largest economy showing signs of slowing.
"Staying the course is the safest option," said CIMB Investment Bank's Economist Michelle Chia. "Unless growth slows more forcibly beyond the supply disruptions, policy rate cuts are a risky strategy."
July exports rose 9.4%, totalling 86.12 billion ringgit ($20.8 billion), according to data released by the Ministry of International Trade and Industry. That compares with June's 7.6% year-on-year gain. On a month-on-month basis, exports rose 9.6% in July.
Shipments of electrical and electronics goods, which account for more than one-third of Malaysia's total exports, increased 23.6% in July from a year earlier, while petroleum product exports fell 13%.
In terms of markets, exports to Malaysia's largest trading partner China surged 37.5% year-on-year in July.
Imports, meanwhile, were up 10.3% to 77.83 billion ringgit in July, largely driven by consumption and capital goods. Imports of intermediate goods however fell marginally. On a month-on-month basis, imports rose 7.2% in July.
Trade surplus widened to 8.3 billion ringgit in July, 1.7% higher on year and 38.3% higher on month.
"Despite the rebound in July's exports, growth momentum has weakened," which will likely continue into the second half, said RHB Research Institute's Economist Vincent Loo. He kept his forecast for exports growth to slow to 6.5% this year from 19% in 2017, citing weaker global trade outlook.
Malaysia's central bank, which has kept interest rates steady since January, said the external sector will continue to benefit from the sustained global growth momentum. "On balance, the Malaysian economy is expected to remain on a steady growth path."
In the immediate term, however, the economy faces "downside risks stemming from heightened trade tensions, prolonged weakness in the mining and agriculture sectors and some domestic policy uncertainty," BNM said.
--Jason Ng
