Malaysia is likely to lower its interest rate in the first quarter of 2007, a senior analyst from the Malaysian Institute of Economic Research (MIER) said.

The southeast Asian nation needs to lower its interest rate to neutralize the impact of the strengthening of the ringgit and the slowing of economic growth, said MIER's Executive Director Professor Emeritus Mohamed Ariff Abdul Kareem.

"I expect that to happen in the first quarter. Bank Negara Malaysia (the central bank) will move towards the interest rate we had some time ago before the increase started," Mohamed Ariff was quoted as saying by the Bernama news agency on Friday.

There is still room for a downward adjustment in the interest rate because it is much higher than before, but the Bank Negara is unlikely to reduce it by a large margin, said Mohamed Ariff.

He expects the central bank to take steps towards a gradual rollback by 25 or 20 basis points at most.

"The inflation is contained now because the economy is moving towards a slower mode. The pressure on prices will ease and, therefore, the interest rate will not be a problem," he said.