Malaysia raised interest rates for the first time in seven years to fight inflation on Wednesday as annual third-quarter economic growth accelerated to 5.3 percent.
The central bank raised its overnight policy rate by 30 basis points to 3.0 percent, still below inflation and not enough to stem outflows of foreign money in the view of many economists.
"It's probably too little, too late to be honest. I think 30 basis points is neither here nor there," said CLSA economist Nigel Rendell. "I would be surprised if the policy rate would be less than 4.5 percent by this time next year."
Bank Negara chief Zeti Akhtar Aziz appeared to leave the door open for further rate increases.
"Following this interest-rate adjustment, the level of the overnight policy rate continues to be below its neutral level and therefore the stance of monetary policy remains accommodative and supportive of the economy," she told reporters.
Economists and market analysts have partly blamed negative real interest rates for recent outflows of foreign capital. Malaysian short-term interest rates are among the lowest in emerging markets and are below US rates.
Malaysia has lagged other Asian nations in tightening monetary policy for fear of dampening consumer demand and hurting growth. But with inflation near 6-1/2-year highs and capital leaking out, Malaysia is finally in step with the region.
Zeti said she did not expect inflationary pressures to intensify, though inflation would remain above 3 percent until at least the first quarter of next year.
Official reserves dropped by $3.2 billion in October, which economists said was the largest monthly decline since July 1997, as foreigners sold Malaysian assets.