Malaysia May Have To Adopt Higher Interest Rate Regime, Says Economist

PETALING JAYA, Feb 23 (Bernama) -Malaysia may have to adopt a higher interest rate regime by the end of the second quarter of this year as inflationary pressures become more prominent in the economy, according to an economist.Senior strategist of global markets, Asia, of Fortis Bank Singapore branch, Joseph Tan, said while an aggressive hike in interest rates may not be necessary to slow inflation, the Malaysian economy may need to take the first step in raising interest rate by 25 basis points."As surging oil prices prevail in the global horizon and inflationary pressures gather steam, Malaysia will have to assess the extent of the impact of the 25-basis point hike on inflationary pressures," he told Bernama on the sidelines of the 2008 International Financial Planning Advisors Conference here.According to Tan, the Asian region is now grappling with inflationary pressures in the economy.While Malaysia's inflation may not be at an alarming rate currently since it was coming more from the supply side, Tan said lingering high crude oil prices will trickle down to the prices of food and other essential items eventually, especially if fuel subsidies are lowered."There is also a tendency for the currency to strengthen further against the US dollar as other currencies in the Asian region rallied against the US dollar and struggled to keep interest rates steady," he said.During the week, the yuan broke a new record high, rising 16 percent since the end of its pegging to the dollar in 2005, as China's central bank pledged to make the currency more flexible to curb inflation.The Singapore dollar also rose to a 10-year high this week while other currencies in Asia also gained significantly following the weakening of the US dollar on expectations of more interest rate cuts as poor economic data points to a slowdown for the US economy.Tan said the key themes for Asia this year will be the sub-prime mortgage effects in the United States, the easing stance of the US Federal Reserve and inflationary pressures.According to him, Asia can withstand a slowdown in the US economy."Asia is the fastest growing region today. There will be no recession in this region. Its high currency reserves and regional financial cooperation such as the Chiang Mai initiative will keep the economy growing," he said.Tan said Asia has investment grade credits and is an attractive bond market, particularly countries like Vietnam, Indonesia and India.However, there are risks to the economy, he said, adding that markets in Asia and globally have become more volatile."Risks of crisis will likely to be more systematic rather than country- or region-specific," he said.