KUALA LUMPUR, May 16 — Malaysia’s economy grew at the fastest pace in five quarters amid an export recovery, increasing scope for the central bank to raise interest rates and contain threats to financial stability.

Gross domestic product rose 6.2 per cent in the three months through March 31 from a year earlier, after climbing 5.1 per cent in the final quarter of 2013, the central bank said in a statement in Kuala Lumpur today. The median in a Bloomberg News survey of 22 economists was for a 5.7 per cent increase.

A revival in global demand, led by more confident American households and businesses, is spurring orders for Malaysian goods while wage growth and capital spending in the Southeast Asian economy fuel consumption.

Bank Negara Malaysia signalled this month it may need to adjust the degree of monetary policy accommodation to avoid a build-up in financial and economic imbalances, spurring bets it will raise borrowing costs.

“It’s a simple case of both domestic demand and external demand driving growth, unlike the last two years where it’s running on a single engine,” Suhaimi Ilias, chief economist at Maybank Investment Bank in Kuala Lumpur, said before the release.

The ringgit has strengthened about 1 per cent this month against the US dollar. The FTSE Bursa Malaysia KLCI Index of shares rose 0.2 per cent today. Malaysian interest-rate swaps are pricing in a 50 basis-point increase in borrowing costs in the next year, data compiled by Bloomberg show.

Policy rate

GDP may rise 4.5 per cent to 5.5 per cent in 2014, the central bank said in March, widening the range from an earlier forecast of 5 per cent to 5.5 per cent. The economy grew 4.7 per cent last year.

The central bank held the overnight policy rate at 3 per cent for an 18th straight meeting on May 8, even as it joined the Philippines in signalling a readiness to contain threats to financial stability.

Higher fuel prices and electricity tariffs have driven inflation in Southeast Asia’s third-biggest economy to the fastest in more than two years. Consumer prices rose 3.5 per cent in March from a year earlier, matching the fastest pace since June 2011. The central bank forecasts price gains of 3 per cent to 4 per cent this year.

Services rose 6.6 per cent in the three months through March from a year earlier after climbing 6.4 per cent in the fourth quarter, today’s report showed. Construction gained 18.9 per cent last quarter, while manufacturing grew 6.8 per cent.

Net exports climbed 14.9 per cent in the first three months from a year earlier. Private consumption growth rose 7.1 per cent last quarter. — Bloomberg