Governor Zeti Says Malaysia Inflation Isn't Concern, Market News Reports

Malaysia’s central bank Governor Zeti Akhtar Aziz said inflation this year will be within the bank’s forecast range and isn’t a concern that needs to be addressed, Market News International reported.

Malaysia’s economy is gaining momentum as private consumption and investment strengthen, even as events in the U.S. and Europe have led to “uncertainty” for growth, Zeti said yesterday in an interview in Basel, Switzerland, according to Market News. The central bank will study the outlook for the domestic and global economy in assessing whether it will pause in raising borrowing costs, she was cited as saying.

“Malaysia’s economic strength will allow the central bank to continue to normalize interest rates at its next meeting even though inflation is not likely to be an issue,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore. Liew expects Zeti to raise the benchmark rate by 0.25 percentage point at the next meeting before keeping it steady for the rest of the year.

Rising exports and production helped Southeast Asia’s third-largest economy expand at the fastest pace in a decade last quarter, allowing the central bank to raise interest rates ahead of most of its Asian neighbors. Inflation is forecast to average 2 percent to 2.5 percent this year, accelerating from 0.6 percent in 2009, according to the central bank.

Bank Negara Malaysia doesn’t foresee any “intensifying inflationary pressures” this year, Zeti was quoted as saying.

The central bank raised rates by a quarter of a percentage point at each of the past two meetings, bringing the overnight policy rate to 2.5 percent from 2 percent. The level of borrowing costs hasn’t hurt demand for loans for investments, Zeti was cited as saying.

The Malaysian ringgit is Asia’s best performer against the dollar and euro this year, according to Bloomberg data. The currency’s appreciation is orderly and reflects the nation’s “improving economic conditions,” Zeti was quoted as saying.

The central bank will make its next monetary policy decision on July 8.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net