KUALA LUMPUR, MALAYSIA - Malaysia will not be adversely affected by interest rates and inflation, despite surging oil and food prices and recent fuel hikes in the country, a minister said on Tuesday.

The comments by Second Finance Minister Nor Mohamed Yakcop come less than a month after the government raised pump prices by 41 per cent in a deeply unpopular move aimed at reducing its subsidies bill, which would have reached 17 billion dollars (S$23.2 billion) this year.

'I don't see a major challenge going forward in interest rates and inflation,' Mr Nor Mohamed told state news agency Bernama.

The minister said he was uncertain if the central bank would use interest rates to curb inflation. 'I don't really know.

Bank Negara will have to say if interest rates is the best way,' he was quoted as saying by Bernama.

Last month, the central bank said the country's key interest rate would remain unchanged at 3.50 per cent.

Malaysia's inflation rate rose to a 22-month high of 3.8 per cent last month from 3.0 per cent in April and 2.8 per cent the month earlier, driven by higher food prices, while for the first four months of the year, it averaged 2.7 per cent.

Mr Nor Mohamed said the government was maintaining its growth forecast of between five and six per cent for the year.

'Our growth rate will be good because the first quarter is over seven percent. The second half could be slightly affected but overall I think we should get between five and six percent,' he told Bernama. -- AFP