Bank Negara said today it may raise interest rates if the economy grows faster in the third quarter than in the second.

"In the second quarter, we saw slower growth amid an environment of rising prices and at that time, the risk of slower growth and higher inflation was about in balance," said its governor Zeti Akhtar Aziz.

"If growth improved in the third quarter, we can expect a monetary policy response," she told reporters on the sidelines of a regional conference on East Asia's investment climate and competitiveness.

Zeti made the remarks in response to a question about whether inflationary pressures have taken priority over the need to support economic growth.

She also said that the country's third quarter performance will give a clearer picture of the economy's underlying growth potential and inflationary conditions.

Malaysia's economy grew 4.1 percent year-on-year in the second quarter and most economists expect the third to be around 4.5-5.0 percent.

Bank Negara is scheduled to release the figures on November 30.

Earlier this year, Zeti had said inflation could remain high at above three percent until April 2006.