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Monetary Policy Statement

Ref No : 09/11/01 08 Sep 2011 Embargo : Not for publication or broadcast before 1800 hours on Thursday 08 September 2011

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

Global growth has moderated in the recent months as growth in the advanced economies slowed by more than expected following the greater policy uncertainties, worsening of confidence and heightened financial market volatilities, amidst continued weaknesses in labour market conditions. Going forward, the advanced economies are expected to register a slower pace of growth than earlier anticipated. In the Asian region, sustained domestic demand is expected to continue to support economic growth amid weaker external performance. Prolonged uncertainties in the financial markets, weakness in the labour market and the prevailing fiscal conditions in the advanced economies have heightened the downside risks and fragility of the global economy.

In the domestic economy, recent indicators point to slower growth in external demand following the weaker global economic environment.  Domestic growth prospects, however, continue to remain positive, underpinned by the expansion in private consumption and private investment.  Employment conditions remain favourable amid sustained business and consumer confidence. The public sector will also continue to support economic growth. Moving forward, the more challenging external environment has, however, increased the downside risks to the domestic economy.

Domestic headline inflation moderated slightly to 3.4% in July on account of slower increase in the transport category. Food price inflation has, however, continued to increase. Going forward, inflation is expected to remain relatively stable for the rest of the year. While cost-push inflation continues to remain, the pace of increase is expected to be more gradual.  The upside risks to inflation will also be contingent on whether the strength of domestic demand will be sustained, in the event of further deterioration in the external conditions.   

In the MPC's assessment, while inflation remains a concern, the increased uncertainties on the global and domestic economic growth prospects and their potential consequences could have a moderating impact on inflation.  The MPC will continue to assess carefully the evolving developments surrounding inflation and the economy, and adjust monetary conditions accordingly to ensure the sustainability of growth of the Malaysian economy in an environment of price stability.

Bank Negara Malaysia
08 Sep 2011

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