POLL-Malaysia's fuel hikes to drive up inflation, rates

SINGAPORE, June 5 (Reuters) - Malaysia's inflation is
expected to rise to a 10-year high of 4.7 percent in 2008,
after the government sharply raised fuel prices, a Reuters poll
showed.

Economists expect Malaysia's central bank to raise its
benchmark interest rate to 4 percent from 3.5 percent
currently, by the end of the year.

The government announced on Wednesday a broad overhaul of
energy pricing, including a 41-percent increase in petrol
costs, in a move to ease the state's burden funding expensive
subsidies. "The central bank has to take some action to
anchor inflation expectations and also to moderate the
second-round inflation effect," said Irvin Seah, economist at
DBS Bank in Singapore.

Central bank Governor, Zeti Akhtar Aziz, said on Thursday
that energy price rises meant inflation would average 4.2
percent in 2008 and Prime Minister Abdullah Ahmad Badawi had
estimated inflation in a range of 4 to 5 percent this year.

An inflation rate of between 4 and 5 percent would be the
highest since 5.3 percent registered in 1998.

Bank of America expects the central bank to start its
tightening campaign in July, when it is likely to raise rates
by 25 basis points, followed by two more rate rises later this
year.

HSBC economist Robert Prior-Wandesforde estimated that the
fuel price rise, which took effect on Thursday, would push
annual inflation in June to 7-8 percent, which could hurt the
economy.

"I haven't rushed to slash growth forecasts, but clearly we
need to make a downward adjustment," he said, adding the bank
currently expects the economy to grow 6.2 percent in 2008.

Malaysia's economy grew 6.3 percent last year.

Consumer prices in April rose 3 percent from a year
earlier, the highest level in 15 months, led by higher food
prices.

Christy Tan, currency strategist at Bank of America, said
she still expected the ringgit MYR= to rise to 3.1 per dollar
by the year-end.

"There are potentially countering factors, where tightening
moves will be constructive for the ringgit, but growth concerns
may also escalate," she said.

But strategists at HSBC said they were no longer bullish on
the ringgit, citing near-term risks from inflation and domestic
politics.

The ringgit, a laggard in the region, fell as far as 3.266
per dollar on Thursday against a broadly stronger dollar.

Following are forecasts from 11 economists pulled by
Reuters for the full-year annual inflation (expressed as
percentage change from a year earlier) and the official
benchmark interest rate by the end of 2008:

Inflation Interest rate
DBS Bank 4.5 4.00
Bank of America 4.2 4.25
HSBC 5.5 4.25
Action Economics 4.5 3.75
AmInvestment Bank 5.0 4.00
RHB Research 5.0 4.00
CIMB Research 4.7 3.50
Aseambankers 5.5 3.50
Fortis 4.2 3.50
Standard Chartered 4.5 3.50
JPMorgan 4.7 4.00
_________________________________________________________
Median 4.7 4.00
(Reporting by Kevin Yao and Soo Ai Peng, Editing by Jacqueline
Wong)