Malaysian central bank governor Zeti Akhtar Aziz said yesterday that interest rates will be raised immediately to keep inflation in check after the economy accelerated in the third quarter.

To reign in inflation of Southeast Asia's third-largest economy, Zeti said the overnight policy rate (OPR) would be raised by 30 basis points to three percent with immediate effect.

It was the first rate hike in seven years.

Zeti said the increase in the OPR, which was introduced in April 2004 to replace the intervention policy rate, was based "on domestic considerations and not concern over capital outflow."

"The ceiling and floor rates of the corridor for the OPR are correspondingly increased to 3.25 percent and 2.75 percent respectively."

Inflation showed signs of further easing in October, rising 3.3 percent from a year earlier. Inflation rose to a six-year high of 3.7 percent in August and 3.4 percent in September.

For the 10 months to October, inflation rose 2.9 percent over the same period last year.

The central bank also said Malaysia's economic growth strengthened to 5.3 percent year-on-year in the third quarter from a revised 4.4 percent growth rate in the second, led by the service sector.

Zeti said the economy grew faster mainly due to private sector activity.

"Private sector activity continued to provide the main impetus to growth," she told reporters at a press briefing.

Services sector growing

Zeti said that in the first nine months of the year, the economy expanded by 5.3 percent year-on-year compared to 7.6 percent in the same period in 2004.

Third quarter manufacturing sector growth strengthened to 3.4 percent from revised 3.1 percent in the preceding quarter, she said.

The services sector continued to grow, expanding by 7.3 percent compared to a revised six percent in the second quarter.

Zeti also said that the mining sector rose by 3.4 percent from a revised 1.5 percent fall in the second quarter.

The agricultural sector expanded by 0.9 percent in the third quarter as opposed to a revised 3.3 percent increase in the preceding quarter.

Growth in the construction sector, she added, continued to decline to 1.4 percent from a two percent drop in the preceding quarter.