KUALA LUMPUR (Thomson Financial) - The Malaysian government said Thursday it expects funding costs to remain stable despite the cut in US interest rates.
'Let the central bank come out with a statement on interest rates, [but] we believe that interest rates will be stable. There is no reason for us to believe that the interest rate is going to be volatile,'' said Second Finance Minister Nor Mohamed Yakcop.
The government is also confident that the inflation rate will remain between 2 percent and 2.5 percent this year despite global oil prices reaching record highs.
Malaysia's consumer price index rose 1.9 percent in August on an annualized basis. Bank Negara, the central bank, has kept its key interest rate unchanged at 3.50 percent since April last year.
Nor Mohamed reiterated Prime Minister Abdullah Ahmad Badawi's statement that retail prices of gasoline and diesel will not be increased until next year. The government heavily subsidizes prices at the pump.
Nor Mohamed said the government has yet to decide on state oil company Petronas's proposal to hike the price of natural gas it supplies to the power sector.
Revenue from Petronas is expected to be higher this year given record global oil prices, but the government wants to make sure that the income will be used in ways that will bring long-term benefits to the country.
'The larger issue is that, the income we get from Petronas, we must make sure that we use the money well, not use the money for short-term purposes, but for the future generation and capacity building,' he said.
Nor confirmed that talks about forming a strategic alliance between ailing national automaker Proton and Germany's Volkswagen are continuing.
'We hope, by year-end, things can happen,'' he said. He declined to elaborate.
The government's investment arm, Khazanah Nasional Bhd, which owns 43 percent of Proton Holdings, has been in talks with Volkswagen for months.
German newspapers reported this month that Volkswagen may take a 20 percent stake in Proton initially, but that it wants the government to fully dispose of its stake in the carmaker before raising its own stake to 50 percent.
(1 US dollar = 3.45 ringgit)
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