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Monetary Policy Statement

Ref No : 04/09/12 29 Apr 2009 Embargo : Not for publication or broadcast before 1830 hours on Wednesday 29 April 2009
At the Monetary Policy Committee meeting today, Bank Negara Malaysia decided to leave the Overnight Policy Rate (OPR) unchanged at 2.00 percent.

The global economic conditions deteriorated further in the first quarter of 2009, while conditions in the international financial system have yet to normalise. Although there are tentative signs of a slower pace of decline in a number of economic indicators in recent months, major advanced economies are still experiencing a deepening economic contraction. Regional economies have also recorded a sharp economic slowdown in the first quarter. While the near-term economic outlook will continue to remain weak, the implementation of large stimulus measures by several countries has increased the prospects for economic conditions to improve in the second half of the year. Further progress in the financial sector resolution has also been made in several advanced economies, the success of which is a key precondition for the stabilisation of economic and financial conditions.

The sharply adverse global developments have resulted in steep declines in Malaysia's exports and industrial production, which have in turn affected private sector activity and labour market conditions. The economy, therefore, is expected to record a marked contraction in the first quarter of 2009. These conditions are expected to prevail until the second quarter of the year. Nevertheless, some signs of moderation in the pace of decline in economic activity have emerged. The current assessment is that the domestic economy is expected to improve in the second half of 2009, supported by stabilisation in global economic conditions and the larger impetus from the implementation of the fiscal stimulus measures.

Meanwhile, inflation decelerated to 3.5 percent in March, and is expected to moderate further amid subdued demand conditions and lower external price pressures.

Going forward, the implementation of the fiscal stimulus measures, and the accommodative monetary environment following the previous reductions in the OPR, will provide support to domestic economic activity. The Malaysian financial system remains strong and the monetary transmission process is functioning to deliver the impact of the policy stimulus to the economy. An acceleration of the implementation of the fiscal measures would raise the prospects for an earlier resumption of positive growth in the Malaysian economy. The current assessment is that the accumulated monetary policy measures are sufficient to provide support to domestic demand. Continued attention will be given to ensure an adequate flow of credit to all segments of the economy. In addition, access to the bond market by the private sector will be further enhanced by the establishment of the Financial Guarantee Institution. Liquidity in the financial system remains sufficient to support the demand for financing from both the private and public sectors.

Bank Negara Malaysia will monitor closely and assess the evolving developments in setting future monetary and financial policies.

Bank Negara Malaysia
29 Apr 2009

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