Malaysia c.bank head calls for need to rein in inflation - Reuters

Source:http://uk.reuters.com/article/2011/07/25/malaysia-economy-idUKL3E7IP0GW20110725

Malaysia c.bank head calls for need to rein in inflation

KUALA LUMPUR, July 25 | Mon Jul 25, 2011 10:39am BST

(Reuters) - Malaysia's central bank governor Zeti Akhtar Aziz on Monday said the country needs to keep a check on the rising rate of inflation as it would undermine its future prospects.

"We have to rein in inflation," Zeti told reporters on the sidelines of a central bank function. "This is something we really want to address so that it doesn't undermine our future prospects."

The central bank had earlier forecast inflation to average 2.5-3.5 percent for the year.

Malaysian annual inflation touched a 27-month high at 3.5 percent in June, reinforcing expectations of a rate hike in the next monetary policy meeting in September.

Bank Negara surprisingly held interest rates steady at 3 percent in its last policy meeting on July 7 as it braced for growth to slow.

However, some economists expect a rate increase of at least 25 basis points as strong demand and high energy prices keep inflation elevated.

"The rate of inflation - it's now 3.5 percent - has increased and this is largely due to very high energy and commodity prices," Zeti said, adding that high inflation would erode domestic purchasing power.

"It has resulted in higher food and fuel prices, which are very much felt as they are important components in our consumption basket."

Zeti has been credited for overseeing key policy developments such as being the first Asian central bank to lift borrowing costs in 2010 to keep a lid on inflation. (Reporting by Purwa Naveen Raman; Writing by Min Hun Fong; Editing by Ramya Venugopal)