Saturday, July 26, 2008

Malaysia's central bank raises 2008 inflation forecast but keeps interest rates steady

KUALA LUMPUR, Malaysia: Malaysia's central bank hiked its annual inflation forecast to at least 5.5 percent for this year, but it held back on raising interest rates amid worries about shrinking financial growth.

Bank Negara Malaysia said the country's economy performed well in the first half of 2008 but faces sterner challenges in the next 12 months because "both the risks to higher inflation and slower growth have increased tremendously."

Average inflation is projected to range between 5.5 percent and 6 percent for this year, the bank said in a statement late Friday after a monetary policy meeting. Its previous prediction was 4.2 percent.

The new forecast came two days after the government announced consumer prices spiked by 7.7 percent in June compared with the same month last year. It was the steepest climb in 27 years, spurred by the government's move to increase retail gasoline prices by 41 percent in June.

The central bank noted that higher fuel prices have pushed up costs of food and transport, but it stressed that its immediate concern "is to avoid a fundamental economic slowdown that would involve higher unemployment."

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International Herald Tribune, France