KUALA LUMPUR, Feb 23 (AFP): Malaysia's central bank raised its key interest rates yesterday to curb inflation after announcing gross domestic product had grown by 5.3 per cent in 2005.
The year's 5.3 per cent growth, compared to growth of 7.1 per cent in 2004, was in line with the government forecast of 5.0-6.0 per cent.
Bank Negara also said it would raise key interest rates for the second time in three months amid inflationary pressures, raising the overnight policy rate (OPR) by 25 basis points to 3.25 per cent.
It said that while it did not expect inflationary pressures to intensify, inflation was expected to remain at current levels for "some time" due to higher energy prices and rising costs.
"The change in OPR is intended to align monetary condition to the current environment," Bank Negara said in a statement.
The OPR is the main interest rate which banks use to benchmark their own lending rate, which is based on supply and demand.
Inflation rose to 3.0 per cent for all of 2005, peaking at a six-year high of 3.7 per cent in August, compared with a 1.4 per cent increase for 2004.
"For the whole of 2005, the combination of strong domestic demand and exports resulted in an overall growth in real gross domestic product of 5.3 per cent," Bank Negara said.
The central bank said it expects stronger growth this year, supported by a stable global economy and better demand for electronics.
"Prospects are for stronger growth in the Malaysian economy in 2006. Of significance, the outlook for global economic growth remains sound and would be driven by the upturn in the global investment and electronics cycle," it said.
Meanwhile, the central bank of Nepal yesterday introduced new monetary instruments to control inflation and bring about price stability in the country, state- run Radio Nepal reported here today.
"Being harried by the rising inflationary pressure and a price rise in petroleum products, Nepal Rastra Bank (NRB) introduced the new monetary instruments," the radio said.
NRB, as a policy response to the risk of inflation, has revised bank rates by 25 basis points to 6.25 per cent from an earlier level of six per cent which is expected to bring about stability in the money market and prices, Bijay Nath Bhattarai, governor of NRB, said while releasing a mid-term review of monetary policy at NRB.
"The supply shock, especially of oil prices, has generated pressure on the overall price level," the radio quoted Bhattarai as saying.
"Despite the aggregate demand, monetary factors have little role in it," Bhattarai said, adding, "However, the supply-induced spurt in prices, has generated inflationary expectations."
According to Bhattarai, there is a possibility of drop in the agriculture sector's and industrial sector's performance.
The bank rate was an indication for the banking sector which guides interest rates of banks, Krishna Bahadur Manandhar, deputy governor of NRB, said at the function.
"NRB already has over 12 billion Nepali rupees (171.42 million US dollars) in treasury bills which is enough to maintain market stability, Manandhar revealed.
Food grain production is likely to decline marginally in current Nepali fiscal year (July 16, 2005-July 15, 2005) owing to unsatisfactory weather conditions both during summer and winter seasons.
Manufacturing production grew at a low rate of 2.4 per cent in the first quarter of the current Nepali fiscal year compared to a growth of 4 per cent in the last Nepali fiscal year.
The hike in petroleum prices has increased inflationary pressures and due to internal conflict, there is a greater government expense and a larger budget deficit, Manandhar noted.
The central bank, in order to control inflation, will mop up liquidity from the market through the issuance of treasury bills, he added.