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Malaysia c.bank warns against reliance on rates-report

Written by: Staff
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KUALA LUMPUR, June 17 (Reuters) Malaysia should not depend solely on interest rates to combat inflation, the country's central bank chief said in an interview published on Saturday.

Bank Negara Governor Zeti Akhtar Aziz told the Edge financial weekly that policy makers should also consider structural adjustments and reforms to help address the problem.

''My own view on policies to deal with inflation is that we need to have a comprehensive set of policies, and not only rely on interest rates,'' she said in a written reply to the Edge.

She did not elaborate.

Malaysia's annual inflation rate was 4.6 percent in April, just off a seven-year high of 4.8 percent in March, driven mainly by costlier fuel.

Bank Negara held its official overnight rate at 3.50 percent in May, but had raised rates in November, February and April by a total of 80 basis points to tame inflation.

Zeti told the weekly that interest rates might need to be raised too high -- which could affect economic growth -- if the government relied only on the monetary tool.

''But that does mean that interest rates should not be adjusted,'' she said.

''It is important that interest rates are adjusted to align monetary conditions with the domestic and financial conditions.

Otherwise, it will create its own set of distortions,'' she added.

''This would have its own set of dangers. Also real interest rates should not be significantly negative for an extended period in time.'' Zeti also said Malaysia's economy was still on track to grow 6.0 percent this year, as officially projected, and that the only area of concern was cost-pushed inflation.

The economy grew 5.4 percent last year.

REUTERS PV RN1934

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