Malaysia c.bank set to raise rates to temper inflation

KUALA LUMPUR, July 10 Wed Jul 9, 2014 5:00pm EDT

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KUALA LUMPUR, July 10 (Reuters) - Malaysia's central bank is expected to raise its policy interest rate for the first time in more than three years to rein in spending that has ratcheted up consumer debt and inflation.

Economists expect Bank Negara to favour tighter policy at its rate review on Thursday as growth has been strong and exports are improving.

"Strong growth would help mitigate the impact of an interest rate hike on slower private consumption," said Michael Wan, a Credit Suisse economist.

"Higher interest rates would serve as a deterrent to new borrowers and moderate household debt," Wan added.

A majority of economists in a Reuters poll forecast a 25-basis-point increase to 3.25 percent. The central bank has held rates steady since mid-2011.

At its meeting in May, Bank Negara signalled that key rates "may need to be adjusted" to tackle "financial imbalances".

Household debt has risen by more than 25 percentage points in four years, standing at a hefty 86.8 percent of GDP in 2013 - the second highest in Asia after South Korea's 91.1 percent.

Malaysia's annual economic growth picked up in the first quarter to 6.2 percent, its fastest in more than a year, while exports grew an average of 13.6 percent from January to May this year helped by improved demand for its technology products and commodities .

Industrial output is also expected to be solid with a Reuters poll predicting growth in May picked up to 4.4 percent from a year earlier. Factory output data is due at 0401 GMT on Thursday.

The central bank's rate decision is due at 1000 GMT. (Editing by Jacqueline Wong)

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