There’s a '50-50 chance' that the central bank will raise interest rates this week, and if it doesn’t, an increase at the next meeting in August is 'a foregone conclusion,' says an economist
MALAYSIA'S inflation accelerated to a 26-year high in June after the government increased fuel prices, spurring speculation the central bank will raise interest rates for the first time since April 2006. Consumer prices rose 7.7 per cent last month from a year earlier, after a 3.8 per cent gain in May, Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad told reporters today in Putrajaya, outside Kuala Lumpur. Economists were expecting a 6.6 per cent increase. Malaysia may be forced to join neighbouring Thailand and Indonesia in raising borrowing costs amid soaring oil and food prices, even as a US slowdown threatens the region’s economic expansion. Asian central banks need “decisive tightening” of monetary policies to combat inflation, the Asian Development Bank said yesterday. “There are merits to considering upward adjustments to the monetary policy, no matter how small, just to contain heightened inflation expectations and to address the huge negative real interest rates,” said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd in Kuala Lumpur.
Bank Negara Malaysia, which has kept its policy rate at 3.5 per cent for 17 straight meetings, may raise borrowing costs at its next review on July 25, according to 12 of 20 economists surveyed by Bloomberg News. The last time inflation was above 6 per cent was June 1998, when the central bank’s then benchmark three-month intervention rate was 11 per cent. Malaysia’s overnight policy rate, introduced in April 2004, is the second lowest in Asia according to Bloomberg data, together with Hong Kong’s and Thailand’s benchmark rates.
Fuel Prices
There’s a “50-50 chance” that the central bank will raise interest rates this week, and if it doesn’t, an increase at the next meeting in August is “a foregone conclusion,” Azrul said. Thailand, the Philippines and Indonesia raised their benchmark rates in July, with Indonesia doing it for a third straight month, and India boosted borrowing costs twice in June. In Vietnam, the central bank raised its base rate to 14 per cent last month, the highest in Asia. Prime Minister Datuk Seri Abdullah Ahmad Badawi announced a 41 per cent increase in retail gasoline prices last month in a bid to trim government subsidies that keep pump costs artificially low as crude oil soared. Diesel prices went up 63 per cent, and electricity rates rose in July. - Bloomberg
