Domestic interest rates remain stable despite of US rate cut

KUALA LUMPUR, Sept 20 (Bernama) -- Domestic interest rates will remain stable despite the recent 50-basis point cut in US interest rates, Second Finance Minister Tan Sri Nor Mohamed Yakcop said Thursday.Bank Negara Malaysia has kept the interest rate at 3.50 percent at its past 11 monetary policy meetings, even as inflation slowed and concern heightened that the US housing loan crisis will curb global demand.Speaking to reporters after the launch of Tune Money Insurance by Tune Money Sdn Bhd here, Nor Mohamed said the US interest rate cut will not have a direct impact on the local economy.He said the move to cut rates by the United States as a result of the subprime mortgage credit crisis showed that Malaysia was right in lowering rates during the 1997/98 financial crisis.This was despite the orthodox belief that rates should be raised during a crisis, which led to Western financial markets denouncing Malaysia for doing just the opposite.But the move managed to bring stability to the volatile financial markets and helped Malaysia to recover much quicker than some of its neighbouring economies which followed Western norms and raised rates."I am sure that the authorities in the US felt that this is the time they have to give confidence to the market to make sure the effect of subprime crisis do not create a recession and linger for a long period," Nor Mohamed said."When we had a financial crisis 10 years ago, we were advised by the World Bank and people in the West that the best thing to do in a financial crisis was to increase the interest rates and reduce the liquidity. But we came out very strongly and said that these were nonsense," he said."We did just the opposite of what they advised. We reduced the interest rates as an expansionary monetary policy improved credit and liquidity," the minister said."I think what have we done in Malaysia is what the US is doing now. We don't take credit for it. But we had done it 10 years ago," he added.According to Nor Mohamed, inflation will be maintained at the current level despite global oil prices reaching record highs."At this stage we are still confident that we can get our inflation for this year to be between 2.0 and 2.5 percent," he said.On the Proton-Volkswagen talks, Nor Mohamed said: "We hope by year-end things can happen (to conclude the deal)."He, however, confirmed that talks with Germany's Volkswagen were ongoing.The government's investment arm Khazanah Nasional Bhd has a 43 percent stake in Proton and has been in discussions with Volkswagen since last year to push a strategic alliance between the two carmakers.Volkswagen was earlier reported to have said that it wanted an initial 20 percent stake in Proton, gradually increasing it to 50 percent within five years.The company will intensify its talks with Malaysian authorities with a view towards possible cooperation or shareholding in Proton.