Zeti: Inflation likely to reach 10-year high

Friday June 6, 2008

KUALA LUMPUR: Bank Negara sees Malaysia's inflation rate rising to a 10-year high following the recent increase in petrol prices but says it will not alter its current interest rate policy.

Governor Tan Sri Dr Zeti Akhtar Aziz said that as a result of rising energy prices, Malaysia’s inflation rate would average 4.2% this year but there was no rush for the central bank to raise the current overnight policy rate of 3.5%.

“We do not consider it of any urgency to call a special meeting of the monetary policy committee and we will make that assessment going forward,” she told reporters after delivering the keynote address at the 12th Malaysian Banking Summit here yesterday.

The central bank had earlier set an inflation target of 2.5% to 3% for this year.

The inflation rate of 4.2% would be the country’s highest since 1998 when it peaked at 5.3%.

“Right now, we don’t see any critical developments. The Government has the capacity to deal with both rising prices and how they impact certain target groups,” Zeti said.
She said the initial price impact would be felt in June during which inflation was expected to be about 5%.

“The increase in prices is expected to peak in the first quarter of 2009 before moderating to less than 3% in the fourth quarter,” she said.

On Wednesday, the Government revised upwards the price of petrol to RM2.70 per litre from RM1.92 per litre previously while the price of diesel was also increased by RM1 to RM2.58 a litre.

Zeti said despite the inflationary pressure, the economy was expected to expand 5% this year. Last year, the economy grew 6.3%.

She also reiterated that the central bank had no plans to use the ringgit as a policy tool. “The foreign exchange would continue to set the currency’s value,” she said.