SINGAPORE - Malaysian central bank governor Zeti Akhtar Aziz warned Friday against prematurely raising interest rates in Asia and elswhere, saying this would harm the global economic recovery.

"It appears that rates have bottomed out in major economies and discussion has begun to shift the debate (to) the need to raise interest in the future," Zeti said in a speech at a conference organised by US investment bank Morgan Stanley.

"(But) at this juncture, a premature increase in interests rates when inflation is low, when unemployment remains high and when there is excess capacity would have implications on the growth momentum on countries in which financial reforms are being undertaken.

"Their progress would indeed be affected."

Signs of rebound

Zeti, who heads Bank Negara Malaysia, was speaking after Australia and Britain raised interest rates this week, citing signs of a rebound in the global economy.

The rises have led to speculation other central banks will follow.

Zeti warned interest rate hikes in East Asia would damage the potential growth of consumer spending, which is a major contributor to the region's economies where rising living standards have led to a growing middle class with high purchasing power.

"This expansion in consumer spending in East Asia has the potential to increase further," she noted.

Zeti also said that allowing East Asian currencies to appreciate to address a global trade imbalance, as suggested by the world's richest economies, would not work.

"Our view is that it is very unlikely that an adjustment in the regional currencies will contribute to correct (the) imbalance," said Zeti, whose country has pegged the ringgit currency at a fixed rate against the US dollar.

Trade flows

"This would only take place if the dominant driver of exchange rates are trade flows and not financial flows.

"Such an appreciation of regional currencies would have to be very substantial to address the issue of competitiveness which requires more fundamental and structural adjustments."

The Group of Seven, which links the world's most powerful economies, called for more flexibility in exchange rates during the gathering in Dubai that ended September 20.

The appeal was seen as targeting Japanese authorities in the hope they would stop intervening to rein in the yen, a policy that helps the country's export competitiveness.

Some economists also saw it as a means of pressuring China to allow a stronger yuan to address the United States' huge trade deficit with Beijing.