PETALING JAYA, July 11 — Bank Negara Malaysia (BNM) raised the interest rate from three to 3.25 per cent yesterday, as agreed by the Monetary Policy Committee.

This is the first rate hike after a three-year pause, and it takes effect amid strong economic growth, and concerns of rising inflation and financial imbalances building up in the country.

Malaysian Rating Corporation Bhd chief economist Nor Zahidi Alias said the increase was likely to contain inflationary pressure following subsidy cuts and rising demand ahead of implementation of the Goods and Services Tax.

He said the increase would also, to some extent, help address other problems, such as the elevated level of household debt which stood at 86.8 per cent of GDP last year.

“The impact of this expected increase (if it materialises) will not be too significant to the overall economy but will likely lead to further moderation in private consumption in the quarters ahead.

“It will also likely prevent further sharp increases in lending to the household sector (by the banking system), which has been trending up and grown by about 12 per cent in the past few months, Nor Zahidi said.

Inter-Pacific Securties research head Pong Teng Swee said the rate increase would not significantly affect borrowings.

He said, however, property developers with large borrowings would feel the pinch.

“The impact is likely to affect property companies, power companies and independent power producers, and there will be a slight dampening of the stock market.

Malaysia University of Science and Technology dean of business Dr Yeah Kim Leng said the increase in rates was likely to moderate borrowings but was not likely to have any other significant impact because it had already been factored in earlier.

Robust Malaysian exports are likely to offset any significant slowdown and the growth rate of the economy as it remains intact at between five and 5.5 per cent. 

According to Bank Negara, inflation was expected to be higher than average (at 3.2 per cent) due to higher domestic cost factors, despite the fact it had been relatively stable, as effects of the price adjustments for utilities and energy continued to have an effect.

The central bank said demand-driven inflation remained contained.

With the new interest rate, the stance of monetary policy remained supportive of the economy, the central bank said yesterday.