The Malaysian central bank is not expected to increase the interest rate significantly within 2011, despite rising inflationary pressure in the country.
Zakariah Abdul Rashid, executive director of the Malaysian Institute of Economic Research (MIER), said in Kuala Lumpur on Monday that rising global commodity prices and the second quantitative easing by the U.S. were asserting inflationary pressure to many countries, including Malaysia.
However, the rising of prices in Malaysia were mainly cost- pushed rather than demand-pulled, and therefore sharp interest rate hike was unlikely to take place in the country, explained Zakariah.
According to the latest data released by the authority, Malaysia's consumer price index, which is the gauge of inflation, rose 2.2 percent year-on-year in December 2010, the highest in the year.
"Increase in prices mostly contributed by transport, which grew by 3.6 percent (in December 2010)," said Zakariah, adding that the MIER expected the overnight policy rate (OPR) to be adjusted upwards to at most three percent by year-end.
In 2010, the Malaysian central bank raised the OPR thrice by 25 basis points each time to 2.75 percent.
Zakariah said that quantitative easing measure taken by the U.S. could mount pressure on asset prices in Malaysia, as well as the equity and property markets.
Meanwhile, another economist of the MIER Foong Kee Kuan said since Malaysia had one of the highest household debts among countries in the Asia Pacific, sharp rise in interest rates would burden the people, and subsequently affect consumption.
He pointed out that the possibility of the general election to be held this year also reduce the likelihood of significant interest rate hike.
The MIER projects that Malaysia's CPI to increase to 2.8 percent from 1.7 percent in 2010.