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Monetary Policy Statement

Ref No : 05/08/06 26 May 2008 Embargo : Not for publication or broadcast before 1900 hours on Monday 26 May 2008

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to leave the Overnight Policy Rate (OPR) unchanged at 3.50 percent.

The Malaysian economy has continued to perform well during the first quarter of 2008, driven by strong domestic demand. Furthermore, while exports of electrical and electronic products have contracted, net exports have remained firm, supported by stronger exports of commodities and resource-based manufactured goods. However, there is now clearer evidence of the slowing growth in the major economies. This moderation in growth is expected to be felt by the regional economies, including Malaysia, during the second half of the year.

Despite the signs of slowing global growth, commodity and food prices have continued to increase. In particular, oil prices have spiralled up in recent weeks. Domestic consumer price inflation in Malaysia increased to 3 percent in April 2008 and is primarily being driven by higher food prices. There are strong upside risks to global inflation due to sustained high food and energy prices. While such pressures are likely to ease should global growth moderate, in the more immediate term, domestic price pressures are likely to be sustained.

The MPC views the latest data on key international and domestic economic variables as being supportive of its assessment that going forward, the risks to inflation are on the upside, while the risks to growth are on the downside. Should the balance of risks shift towards higher inflation, the Bank will undertake the appropriate monetary policy measures. At this stage the risks are assessed to be about balanced, and consequently, the Bank has decided to maintain the current stance of monetary policy. The future thrust of monetary policy will depend on further information on the relative dominance of either risk going forward.

Bank Negara Malaysia
26 May 2008

© Bank Negara Malaysia, 2008. All rights reserved.