KUALA LUMPUR, Feb 18 — Annual inflation in Malaysia fell to a more than five-year low of 1.0 per cent in January as oil prices skidded, but economists do not expect the central bank to follow others and respond by cutting interest rates.

Central banks around the world have been taking advantage of easing inflation to cut rates to shore up flagging growth, but Malaysia's economy has defied sliding oil and commodity prices, growing much faster than expected in the fourth quarter.

Indonesia became the latest economy to ease policy yesterday, lowering borrowing costs just months after raising the benchmark rate.

A Reuters poll forecast Malaysia's January's annual inflation rate would ease to 1.9 per cent from 2.7 per cent in December. The 1.0 per cent level is the lowest since November 2009.

The Statistics Department attributed the rate fall to reduced transport costs, stemming from lower fuel prices.

On a monthly basis, the inflation rate declined 1.1 per cent in January.

More money to spend

Lower oil prices are good “since it means people will have more money to spend, increasing their purchasing power,” said Farah Syahirah Zakaria, an economist at Kenanga Investment Bank.

The country's economy grew a faster-than-expected 5.8 per cent in the last quarter of 2014, despite falls in global commodity prices.

Malaysia's Bank Negara Malaysia said earlier this month that headline inflation was expected to be lower amid lower global oil prices.

At its last policy meeting in January, the central held its overnight interest rate at 3.25 per cent, where it has been since July 2014, saying that this stance remained accommodative.

Economists have forecast that Bank Negara would either hold its interest rate in 2015 or raise it by 25 basis points in the fourth quarter.

“We continue to expect BNM to pause through 2015 and remain firmly in 'wait-and-see' mode,” ANZ said today. “With a tighter fiscal stance and the government's significantly lower revised inflation forecast for 2015, there is room for Bank Negara Malaysia to ease if necessary, but that's not our base case at this juncture.”

Barclays said that although inflationary pressures are likely to ease further in coming months, it is “unlikely to affect the monetary stance”. — Reuters