UPDATE 2-Malaysian June inflation may exceed 6 pct -c.bank

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By Niluksi Koswanage

KUALA LUMPUR, July 9 (Reuters) - Malaysian annual inflation probably topped 6.0 percent in June, the central bank said on Wednesday, and some economists predicted it would raise interest rates if inflation did reach that level, a 26-year high.

Cheap credit has underpinned domestic demand as global growth slows, but some economists expect Malaysia will have to raise rates for the first time since 2006 as a steep rise in fuel prices pushes up inflation.

The government raised petrol prices by 41 percent last month and lifted diesel prices by 63 percent to rein in its ballooning subsidy bill.

That would drive up inflation for the rest of the year before price pressures moderate in the second half of 2009, central bank Governor Zeti Akhtar Aziz said.

"This adjustment (the fuel price increase) would be reflected in the consumer price inflation in June, which is expected to exceed 6 percent," Zeti told a banking seminar.

The prices of some food, such as vegetables, have risen after the fuel price hike, and bus drivers have said they need to raise fares to cope with rising costs.

The last time annual inflation was near the 6.0 percent mark was when it stood at 5.7 percent in June 1982 and 6.1 percent in May 1982, the Statistics Department said.