KUALA LUMPUR • Malaysia's economy expanded at its fastest pace in more than three years in the third quarter, raising expectations of an interest rate hike in January, when the central bank holds its next policy meeting.
South-east Asia's third-largest economy has recovered this year after a rocky 2016, when growth slumped to its slowest pace since the global financial crisis in 2009.
The economic turnaround may encourage Prime Minister Najib Razak to call a general election before next August's deadline.
Malaysia's economy grew 6.2 per cent in the third quarter from a year earlier, central bank data released yesterday show.
It tops a Reuters poll forecast of 5.8 per cent and is the fastest growth since the second quarter of 2014.
Central bank governor Muhammad Ibrahim said the economy was on track to register growth of 5.2 per cent to 5.7 per cent this year and may even exceed that estimate.
"Exports and the numbers look good, so it would be a pleasant surprise (if GDP exceeds 5.7 per cent). But watch for the external environment. That will influence our growth, not only for Malaysia but also the world," Mr Muhammad said at a news conference.
The government had earlier revised its 2017 full-year projection up from 4.3 to 4.8 per cent.
Growth was driven largely by domestic demand, particularly private-sector spending. Exports and private consumption will likely remain strong enough to prop up the economy going into the next quarter, the bank said.
Malaysia's current account surplus grew to RM12.5 billion (S$4.1 billion), up from RM9.6 billion in April-June.
The central bank said the ringgit has strengthened, but risks remained.
"Ringgit levels are a reflection of our economic strength, and there is more liquidity in the market now and it is not influenced by speculative flows anymore," Mr Muhammad said. "It is more reflective of financial flows in the domestic market," he added.
In November last year, the central bank stepped in to discourage ringgit trade in the non-deliverable forwards market, and later introduced measures to boost onshore ringgit trade.
The currency has so far gained 7.2 per cent on the US dollar this year, after hitting a near 19-year low of 4.4980 on Jan 4.
The central bank left its benchmark rate unchanged last week but raised the possibility that it may review the rate in view of improving economic conditions.
Mr Muhammad told reporters yesterday the bank will look at a review based on incoming data.
A rate hike would be less about creating tighter monetary conditions and more about a "normalisation" of accommodative policy.
Last month, Mr Najib unveiled his last annual Budget before the polls, promising sweeteners that would cut personal income tax for lower-income citizens, pay more to pensioners and spend billions on schools, hospitals and rural infrastructure.