The Malaysian economy grew 6.8 percent in the third quarter, supported by a sustained pick up in domestic demand reinforced by robust exports, the central bank said today.

The growth in gross domestic product (GDP) from July through September was driven mainly by the private sector as the public sector remained committed to fiscal consolidation, said Bank Negara Governor Zeti Akhtar Aziz.

"The rate of growth in the third quarter is within our expectations," she told reporters.

Zeti said growth was broad-based with manufacturing, services and the primary commodity sectors continuing to lead the way.

Growth in the nine months to September averaged 7.6 percent, she said.

Zeti said the central bank forecast growth for the fourth quarter to range between five and seven percent, leaving full-year 2004 on "at least seven percent or if not higher.

"We expect (economic) activity to be strong for the whole year," she said.

Nice surprise

Azrul Azwar, senior economist with MIDF Bhd told AFP that the third quarter figures were within his forecast but the strong growth in the agriculture sector was a "nice suprise."

With a more challenging global environment next year, the central bank was likely to continue a pro-growth policy by maintaining a low interest rate policy, he said.

The central bank said strong performances in the manufacturing and services sectors, which grew 9.9 percent and 6.1 percent respectively, underpinned the outcome.

The agriculture and mining sectors were up 6.1 percent and 4.2 percent respectively.

The central bank said growth in the agriculture sector was driven mainly by higher production of palm oil, rubber and forestry products while the mining sector benefitted from the rise in crude oil prices.

Private consumption rose 10.8 percent on the back of a sustained increase in disposable income following higher export earnings, stable employment conditions, low inflation and the low interest rate environment.

Price increase

However, the construction sector continued to struggle, contracing three percent in the third quarter compared to a decline of 1.7 percent in the second, due mainly to slower activity in the civil engineering subsector.

Zeti ruled out any significant rise in inflation which was higher at 1.5 percent in the third quarter from 1.2 percent in the second.

"There will be some marginal increase in prices but it will not necessitate interest rates to be raised," she said, adding: "We do not expect inflation to become a major issue in the Malaysian economy.

The central bank said the current stance oon monetary policy would be maintained to support growth.

On the ringgit peg, Zeti said Malaysia had never relied on the exchange rate to boost its competitiveness and would only review the system "if there is a potential misalignment or if there is a strutural adjustment that takes place.

"The objective of our exchange rate policy is that we have stability of our exchange rate against the currencies of our major trading partners," she said.

The ringgit has been fixed at RM3.80 to the dollar since 1998 when it was introduced, against the advice of the International Monetary Fund, in the face of the Asian financial crisis.