19/02/2011 (Bloomberg) - Malaysia’s economy expanded 4.8 percent last quarter, spurring full-year growth to the quickest pace in a decade and putting pressure on the central bank to take more steps to curb inflation.

Gross domestic product expanded for a fifth consecutive quarter even as exports eased, the central bank said in a statement yesterday. The gain was more than the 4.6 percent median estimate of 14 economists surveyed by Bloomberg News. The economy grew 7.2 percent last year, the most since 2000.

Malaysia’s government expects growth this year to hold near the 2010 level, an expansion that may prompt the central bank to tighten its monetary policy. Nations from Indonesia to China have boosted interest rates this year, and the International Monetary Fund says the region may need to raise borrowing costs further to limit the risk of overheating.

“Despite the orderly deceleration in growth, the solid contribution from investment and consumption should continue to buoy domestic demand,” Chandara Lim, an economist at Moody’s Analytics in Sydney, said before the report. “Though interest rates have remained on hold, the central bank could raise rates at its next policy meeting to curb rising inflation pressures.”

Asia’s recovery from the 2009 global recession eased toward the end of last year as the European sovereign-debt crisis and U.S. unemployment damped the outlook for exports.

“This performance is better than expected and should carry through into the first quarter of this year,” said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. “It’s leaning toward the top-end of my growth forecast.”

‘Commodity Bonanza’
Prime Minister Najib Razak, who plans to boost growth by attracting investment, forecasts the economy will expand as much as 6 percent this year. Malaysia, the world’s second-largest palm oil producer behind Indonesia, is also benefiting from higher commodity prices.

Surging palm oil and rubber prices may create a “commodity bonanza” that will benefit Malaysian banks, builders and property stocks, according to Credit Suisse Group AG analyst Stephen Hagger. Malaysia’s growth has lured funds and investment and pushed the ringgit up more than 11 percent against the dollar in the past year.

The ringgit, the best performing currency in Asia in the past year, was at 3.0340 per dollar as of 5:20 p.m. local time yesterday. The benchmark FTSE Bursa Malaysia KLCI Index closed 0.6 percent higher ahead of the growth announcement.

Financial Imbalances
Bank Negara Malaysia Governor Zeti Akhtar Aziz increased the benchmark overnight policy rate by 0.75 percentage point from March to July last year to reduce what the central bank said was the risk of financial imbalances that may be caused by keeping borrowing costs too low for too long.

Vietnam on Feb. 17 joined countries from China to India and Indonesia in raising rates this year as the region’s growth and rising global commodity prices boost inflationary pressures. Stocks and bonds across Asia have declined this year amid concern that accelerating price gains will erode purchasing power and spur further tightening.

Malaysia’s benchmark rate of 2.75 percent has been left unchanged at the past three meetings, most recently in January when the central bank signaled it may use other monetary policy tools to manage excess cash that’s building up in the financial system.

The policy stance is “appropriate and consistent” with the current assessment of growth and inflation prospects, the central bank said last month. While the inflation rate rose to a 19-month high of 2.2 percent in December after the government reduced subsidies on fuel and sugar, price gains are still among the slowest in Asia.

Commodities Inflation
“Inflation will creep higher on higher food and fuel- related prices in early 2011 but still remain manageable,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “The last round of fuel and sugar subsidy cuts in December was relatively small. The next round of subsidy cuts may have to be larger and occur before mid-2011 given soaring global oil prices.”

Malaysia’s manufacturing industry grew 6.2 percent in the fourth quarter from a year earlier, and exports of goods and services gained 1.5 percent, according to yesterday’s report.

Najib’s government unveiled an economic transformation program in September aimed at attracting investment, including $444 billion of projects from mass rail to nuclear power involving companies such as Dialog Group Bhd. and IOI Corp.

Factory Investment
Approved factory investment surged 44.8 percent in 2010 as a recovery in the global economy prompted companies to announce new projects and spurred a 13.5 percent expansion in the country’s manufacturing industry, the government said last month.

Investment as measured by gross fixed capital formation advanced 9.2 percent last quarter, while the construction industry grew 5.6 percent, the central bank said yesterday.

“Growth is a tad higher than expected, indicating how the economy has recovered well cyclically from the global slowdown,” Wellian Wiranto, an economist at HSBC Holdings Plc in Singapore, said in a note yesterday. The data may not prompt an interest-rate increase, though “they might start to normalize reserve requirement ratios soon as they have guided previously,” he said.