Business

Friday July 25, 2008 MYT 8:14:19 PM

OPR maintained at 3.5%


KUALA LUMPUR: Bank Negara’s Monetary Policy Committee has decided to keep the Overnight Policy Rate unchanged at 3.5%.

Announcing this on Friday night after a day-long Monetary Policy meeting, Bank Negara said while the risks to higher inflation and slower growth have increased in the next 12 months, “the immediate concern is to avoid a fundamental economic slowdown that would involve higher unemployment”.

“Slowing growth itself will contribute to containing the potential for second round effects on inflation, thereby containing further increases in prices in the second-half of 2009. Given the underlying fundamental strength of the economy, and the resilient banking sector, the Bank’s assessment is that after this transitional period, the Malaysian economy has the potential to re-establish its medium term growth path,” Bank Negara said in a statement.

According to the central bank, the performance of the Malaysian economy in the first-half of 2008 has been driven by robust domestic demand and reinforced by favourable export performance.

“The recent major restructuring of domestic energy prices to bring prices closer to the substantially higher international prices is intended to reduce the fundamental distortions that it might create, and to ensure fiscal sustainability. These adjustments are expected to have a deflationary effect on the economy in the second half of this year and into the early part of 2009.

“The Bank is projecting inflation to remain elevated in the second-half of this year and into early next year before moderating towards the middle of 2009. The average inflation for 2008 is projected to be in the range of 5.5-6%. The inflation rate is expected to moderate in the second half of 2009 in the context of a more moderate growth environment.

“Currently, much of the significant rise in inflation is due to the increase in fuel prices. At this stage, the concern is for broader price increases and second-round effects, which would result in inflation being persistent. In such circumstances, the appropriate monetary policy response will be taken in order to maintain medium term price stability and ensure that the high inflation does not undermine the longer term growth prospects of the Malaysian economy.”

  • E-mail this story
  • Print this story