(Repeats story sent late on Thursday)
* Bank Negara raises policy rate to 3.25 pct
* Says sees exports staying strong
* Domestic demand seen firm, but inflation contained -
By Yantoultra Ngui and Al-Zaquan Amer Hamzah
KUALA LUMPUR, July 10 Malaysia's central bank
raised its key interest rate for the first time in more than
three years on Thursday, as widely expected, to help temper
inflation and rising consumer debt.
Strong domestic consumption has helped underpin growth in
the Southeast Asian economy, but rising household debt levels
are posing an increasing risk when global interest rates rise.
Bank Negara Malaysia (BNM) hiked its overnight policy rate
by 25 basis points to 3.25 percent, after keeping it steady
since mid-2011. It had hinted of a monetary policy tightening to
counter the "build-up of financial imbalances" at its last
meeting in May.
On Thursday, it said that the "normalisation" of monetary
policy was needed to ward off risks of financial and economic
imbalances that undermine growth. It said that its new stance
remained supportive of the economy, which it saw showing
continued strength in exports and private sector activity.
"Going forward, the overall growth momentum is expected to
be sustained," it said in its statement accompanying the
The economy grew at a robust pace of 6.2 percent in the
first quarter from a year earlier. The majority of economists
polled by Reuters had anticipated a 25-basis-point hike as
economic conditions at home and abroad improve and inflation
Many analysts expect interest rates to rise one more time
before the end of the year due to inflationary pressure and
robust growth. Industrial output grew at its fastest pace in
three months in May, data released earlier on Thursday showed.
"We expect another hike in September because the momentum is
still there," said Wellian Wiranto, an economist at OCBC Bank in
Singapore. "Even after the hike, there's a risk that inflation
will pick up."
Economists had expected the rate hike following strong
growth and the continued increase in housing loan approvals.
Property loans form more than half of the country's household
debt, which is now at a lofty 86.8 percent of GDP.
Malaysia's household debt has risen more than 25 percentage
points in just 6 years, as domestic consumption grew on loose
"Many are treating the property market as the new deposit
box that pays higher returns than what banks are offering," DBS
said in a recent research note.
Inflation rose to 3.2 percent in May in contrast to 1.8
percent in June 2013, before the government imposed higher
electricity tariffs, reducing fuel subsidies and eliminating the
"Demand driven inflation remains contained," the central
Inflation is expected to remain elevated with a possible
fuel price increase later this year and the implementation of a
goods and services tax in April 2015.
"The bigger question from the market is what BNM does next,"
said Euben Paracuelles, an economist at Nomura in Singapore.
"There are clues from the policy statement, they've left the
door open for more rate hikes this year. Their assessment in
growth is pretty upbeat, but there is still the risk of
The ringgit, up around 2.15 percent against the
dollar since the central bank signalled tighter policy on May 8,
turned weaker on Thursday as investors cut bullish positions.
Other regional central banks are also keeping watch over
inflation due to strong domestic demand.
The Philippines is expected to raise interest rates at the
end of July after more than six months of rising inflation.
Indonesia held its key rates steady on Thursday while Thailand
kept its interest rate steady last month as its military
government tries to get the economy back on track.
(Additional reporting by Trinna Leong; Editing by Jacqueline
Wong and Stuart Grudgings)