Malaysia Will Likely Increase Interest Rates In Q3

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KUALA LUMPUR, July 9 (Bernama) — Malaysia will likely increase interest rates in the third quarter in an effort to curb inflation, having adopted a neutral stance for the whole of 2007, said an economist.

Bank Negara Malaysia’s policy setting meeting is scheduled for later this month. It has kept the overnight policy rate unchanged at 3.5 percent at its last meeting.

Malaysia’s inflation, as measured by the Consumer Price Index (CPI), was at a 22-month high at 3.8 percent year-on-year in May.

A lot of central banks in the Asia-Pacific have or will be raising rates as inflation across the region has soared in recent months and price growth momentum remains strong going into the second half of the year.

Moodys Economy.com’s economist, Sherman Chan, said the food crisis remained a central concern and continued to put upward pressures on prices. She said the fuel price increases implemented by several economies in the last two months would have a notable impact on inflation during the September quarter.

“The Asean economies are facing a similar inflation and monetary policy outlook. For Indonesia, Thailand, Malaysia, Singapore, the Philippines and Vietnam, CPI growth will likely peak in the third quarter and gradually slow in the final months of the year,” she said in a research note.

She said inflation, despite eventually cooling, would remain at uncomfortably high rates. “This will see Indonesia and the Philippines continue with their tightening agenda in coming months.

“Malaysia will likely increase interest rates in the third quarter, having adopted a neutral stance for the whole of 2007. Thailand also looks set to begin its tightening cycle this month,” said Chan. …more…