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Monetary Policy Statement

Ref No : 05/10/06 13 May 2010 Embargo : Not for publication or broadcast before 1800 hours on Thursday 13 May 2010

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 2.50 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.25 percent and 2.75 percent respectively.

The global economy registered a stronger than expected recovery in the first quarter, underpinned by favourable growth performance in emerging market economies and some of the advanced economies. Policy initiatives and improvements in financial conditions have continued to support the economic recovery in many countries. While economic activity in the advanced economies has generally improved, growth in these economies is still expected to remain modest. Considerable uncertainties remain due to heightened concerns over the sovereign debt problems in Europe and the expected diminishing effects of fiscal policy support. In the emerging market economies, in particular Asia, growth is expected to be stronger, supported by robust domestic demand and increased intra-regional trade.

In the domestic economy, the strong and broad-based growth of 10.1% in the first quarter affirms that economic recovery is firmly established. Going forward, growth will be supported by continued expansion in domestic demand and the improvement in external demand, especially from the region. However, despite this upside potential to growth, there are uncertainties arising from recent developments in the international financial and economic environment.

Domestic inflation recorded a modest increase during the first quarter and will continue to experience a gradual rise during the year, in line with broad-based improvements in economic activity and taking into account possible adjustments in administered prices. Although external factors, including rising global commodity and food prices, may exert some additional upward pressure on domestic prices, overall inflation is expected to remain moderate in 2010.

The MPC decided to adjust the OPR towards further normalisation of monetary conditions. At the new level of the OPR, the stance of monetary policy continues to remain accommodative and supportive of economic growth.

Bank Negara Malaysia
13 May 2010

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