(AFP) Bank Negara today slashed interest rates for the first time in two years to boost economic growth and offset adverse impacts from last week's terror attacks on the US.

Bank Negara said it cut its three-month intervention rate in the short-term money market from 5.5 to 5.0 percent with immediate effect.

It said this would lower the ceiling base lending rates of commercial banks to 6.42 percent from 6.83 previously, while that for finance companies would fall to 7.46 percent from 7.98.

The central bank added that its liquidity operations would be directed at maintaining interbank rates in the prevailing range and adjustments to deposit rates were therefore expected to be minimised.

Bank Negara last cut intervention rates in August 1999.

Its intervention rate largely determines interbank lending rates, which in turn are the basis on which commercial banks calculate their base lending rates.

"Events over the past week have now appeared to weigh against an already weak world economic growth while further dampening global confidence," the central bank said in a statement.

Strong fundamentals

It stressed that Malaysia's economic fundamentals "remain strong" with rising external reserves and inflationary conditions still subdued.

But it said the intervention rate cut would help address "short-term risks that are biased towards weaker domestic economic growth."

"In particular, the reduction in the intervention rate will serve to enhance domestic business and consumer sentiment to support domestic economic activity while mitigating the adverse impact of recent external developments," it added.

Bank Negara said it remained confident of the economy's fundamental strength and resilience.

It said it would continue to monitor developments and would take further pre-emptive steps if necessary to offset the effects of external developments on the economy.