Malaysia inflation has peaked but risk lingers:cbank

Thursday, 17 November 2011 00:00 - - {{hitsCtrl.values.hits}}

(Reuters): Malaysia’s inflation rate has peaked and stabilised but there is still risk of it increasing again, the country’s central bank chief said.

Inflation accelerated sharply in the first half of this year, largely driven by increases in fuel and food prices, but has remained relatively flat since June.

“If there were a sudden shortage of commodities or energy...it will affect our rate of inflation, or if there are disruptions in the supply of food, it will also cause prices to rise,” Governor Zeti Akthar Aziz told reporters at an Islamic financial conference in the capital.

“There are always risks on the horizon for both because we are such an open economy,” she added, when asked if inflation or slowing growth presented a greater risk to the economy.

Bank Negara kept its benchmark interest rate unchanged at 3.00 percent at its last policy meeting held earlier this month, and said it expected inflation to remain stable for the rest of this year.

Zeti added that the ongoing financial crisis also posed a downside risk to growth in contrast with the upside risk of inflation from higher input prices.

Separately, she said the International Islamic Liquidity Management Corporation (IILM) will issue its first papers within the next six months, with the value of the initial issuance expected to be less than $2 billion.

“The first issuance will be a pilot issuance to test the system,” Zeti told reporters.

The IILM is a collaboration between central banks, lenders and multilateral agencies to provide Islamic finance firms with tools to manage liquidity..

“There will be regular issuance throughout the year and each issuance will be in the region of $2 billion. It will be high-quality, short-term liquid instruments and therefore will probably be in demand by other funds managing portfolios,” she added.

Meanwhile, two banking groups have been given conditional approvals for Islamic mega bank licenses, which are Islamic banks with total capital of at least $1 billion. Zeti did not disclose the identity of the banking groups.