UPDATE 1-Malaysian central bank holds rates, in no rush to hike

* Central bank says monetary policy stance is appropriate

* Says economy gaining strength, inflation next year subdued

* Rates <MYINTR=ECI> unchanged at 2 pct for 5th meeting (Adds statement, economist comment)

KUALA LUMPUR, Oct 28 - Malaysia's central bank left interest rates unchanged at 2.0 percent for the fifth consecutive meeting, as expected, and signalled it was in no rush to hike saying that it expected "subdued" inflation.

Wednesday's decision was in line with the forecasts of all 10 economists in a Reuters poll [ID:nKLR72110] and came after revised projections in last week's budget that Asia's third most trade-dependent economy would shrink less than expected this year. [ID:nSP189242]

"We expect tightening to start sometime in the middle of next year, at a modest 25 basis points in the third quarter and another 25 basis points in the fourth quarter," said Irvin Seah, economist at DBS in Singapore.

Malaysia's prime minister last week said in his 2010 budget that Southeast Asia's third largest economy would shrink by 3 percent in 2009, less than the earlier 3-4 percent forecast and grow by 2-3 percent in 2010.

The central bank signalled in its monetary policy statement that although it expected deflation, which it said was caused largely by falling fuel prices, to end, it was not worried by a surge in inflation.

"Excluding further unanticipated price adjustments and external influences, inflation in 2010 is projected to be positive but remain subdued," the central bank said.

CHRONOLOGY OF MOVES (*Note BNM sets rates 10 times a year)

Date Action (bps) To (OPR, pct) ------------------------------------------------------ Oct 28, 2009 no change 2.00

Aug 25, 2009 no change 2.00

July 29, 2009 no change 2.00

May 26, 2009 no change 2.00

Apr 29, 2009 no change 2.00

Feb 24, 2009 Down 50 2.00

Jan 21, 2009 Down 75 2.50

Nov 24, 2008 Down 25 3.25

Apr 26, 2006 Up 25 3.50

Feb 22, 2006 Up 25 3.25

Nov 30, 2005 Up 30 3.00

CONTEXT:

- The central bank has cut the benchmark OPR by a total of 150 basis points since November in an attempt to reduce the impact of the global downturn on the local economy. It stopped easing in April and has repeatedly said that rates are "appropriate" and that rate cuts had been "frontloaded".

- Inflation <MYCPI=ECI> is not a worry as consumer prices have been falling in year-on-year terms. The fell 2 percent from a year earlier in September and inflation is not expected to return until the fourth quarter.