Malaysia's central bank kept its key interest rate unchanged on Thursday, warning of risks to the growth outlook and assuring it will manage heightened market volatility.

Bank Negara Malaysia (BNM) maintained its overnight policy rate (OPR) at 3.00% for the third meeting in a row, in line with market expectations the central bank will stand pat on rates through 2024.

The Southeast Asian economy has confronted sharply slowing growth this year as its exports cool from weaker global demand.

BNM said in a statement that advance growth estimates indicated an improvement in economic activity in the third quarter of 2023, but the outlook remained "subject to downside risks" due to weaker-than-expected external demand and declines in commodity production.

The U.S. Federal Reserve's aggressive monetary tightening and a strong dollar prompted Indonesia and Philippine central banks to raise rates last month after a long pause, adding pressure on BNM to follow suit.

The Fed held off from raising rates on Wednesday, supporting the view of some economists that BNM has completed its tightening cycle in spite of a fragile ringgit.

The ringgit has fallen around 8% against the U.S. dollar this year, the most among its Southeast Asian peers.

BNM said developments in the ringgit were not expected to derail Malaysia's growth prospects.

"Bank Negara Malaysia will continue to manage risks of heightened volatility, including to provide liquidity, to ensure the orderly functioning of the domestic foreign exchange market," it said.

The government reiterated this week it has no plans to peg the ringgit to the U.S. dollar or impose foreign exchange control measures to stem the decline, as it had done during the 1998 Asian Financial Crisis.

Economists said the rate hold was expected as Malaysia's purchasing manager's index and total exports have been in contraction for some time.

"Keeping the OPR steady should be supportive to the overall growth as it will ensure financing cost for the businesses and households remains steady," said Mohamad Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia.

Capital Economics said BNM's comments on ringgit volatility suggested it will "favour intervening in foreign exchange markets over rate hikes as it looks to support the currency".

BNM said in the third quarter, headline and core inflation averaged 2.0% and 2.5%, respectively, adding that inflation was expected to remain modest going into 2024.

The government expects headline inflation to average between 2.5%-3% for 2023. In September, inflation was at 1.9%, its slowest pace since March 2021.

(Reporting by Danial Azhar and Rozanna Latiff; Editing by Kanupriya Kapoor and Jacqueline Wong)