Malaysia Central Bank Governor Says She isn’t Worried of Rising Inflation

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Malaysia Central Bank Governor Says She isn’t Worried of Rising InflationThe Governor of Malaysia’s central bank revealed that she isn’t worried about the nation’s surging inflation and said that price increases will be moderate and contained in two years.

“We don’t see these second-round effects emerging” from faster price increases, Zeti Akhtar Aziz told reporters. “We know the source of the inflation. It is not induced from strong demand, because this is a period when demand is quite modest.”

Since May 2011, Bank Negara Malaysia has maintained its benchmark interest rate at 3 percent. Recently, the surging prices pushed Citigroup and Nomura Holdings to estimate that the central bank will hike the interest rates in 2014.

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Vishnu Varathan, an economist at Mizuho Bank in Singapore, said he expects that by the first quarter of 2015, the central bank to increase the borrowing costs by 25 basis points to 50 basis points.

Consumer prices in Malaysia surged 3.5 percent in February from a year ago after the government reduced state subsidies in order to control the fiscal deficit. Zeti said that she expects inflation to accelerate in 2015 due to tax hikes and then stabilize to around 3 percent.

“The situation is very dynamic, and so we would look at very closely these developments going forward,” she said. Zeti added that while the risks are insignificant at the moment, the central bank should anticipate them and “will continue to track them”.

She also added that Malaysia has coped well with policy changes by the U.S. Federal Reserve, which have triggered capital outflows in developing economies.

“We fared better than we expected” and there was no disruption in credit flows,” Zeti said. “It did not have an effect on our real economy.” To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com