Business

Monday August 25, 2008 MYT 6:38:59 PM

Bank Negara maintains OPR at 3.5%

By JOSEPH CHIN


KUALA LUMPUR: Bank Negara Malaysia has decided to maintain the overnight policy rate (OPR) at 3.50%, as its priority is to avoid a fundamental downturn in economic activity.

The central bank announced on Monday that domestic inflation was expected to remain high for the remaining part of 2008 and going into early 2009 before moderating substantially in the second half.

However, its greater priority was to avoid a fundamental downturn in economic activity and hence the decision to keep the OPR unchanged.

Last Friday, the Statistics Department said inflation, measured by the consumer price index (CPI), rose to a near 27-year high of 8.5% in July, fuelled by the surge in fuel prices.

Bank Negara said on Monday there was growing evidence of a deterioration of economic performance across a number of the developed economies. There were also signs of moderating growth in several emerging economies.

“This has been the outcome of financial stress, tight credit conditions, asset market weakness and the impact of higher energy and commodity prices,” it said.

The central bank said domestic inflation was expected to remain high for the remaining part of 2008 and going into early 2009, primarily reflecting the first-round effects of the adjustments in energy prices, and the higher commodity and food prices.

“Overall, the weaker economic conditions will reduce the likelihood of second-round effects that will generate persistent inflationary trends. The assessment is therefore that inflation is expected to moderate substantially in the second-half of 2009,” it said.

Bank Negara said with the expected moderation in inflation in the medium term, the greater priority was to avoid a fundamental downturn in economic activity.

“The current level of the OPR is consistent with this outlook. Going forward, the (central) Bank will maintain its focus on the medium term outlook for inflation and growth, and will carefully assess global and domestic developments in setting the stance of monetary policy,” it said.

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