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Monetary Policy Statement

Ref No : 04/08/09 29 Apr 2008 Embargo : Not for publication or broadcast before 1700 hours on Tuesday 29 April 2008

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

The latest available data from the major industrial economies indicate a moderation of economic activity in these countries. This is likely to lead to slower global growth in the months ahead. While the slower external demand will have some moderating impact on the Malaysian economy, growth continues to be supported by an expansion in domestic demand. The strong imports of capital goods, manufacturing investment approvals and foreign direct investment inflows are indicators of sustained investment activity. Despite the global financial turmoil, domestic credit conditions have remained favourable as demand for financing continues to be supported by the ample liquidity in the financial system.

Global energy and food prices have risen sharply since the beginning of the year from their already high levels. A major uncertainty at this stage is the extent of the moderation in global economic activity and the impact it will have in reducing global price pressures. Domestic food prices have risen in response to the increase in global prices. The increase in food prices reflect a structural phenomenon requiring measures that ensure the adequacy of supply, create appropriate incentive structures that promote higher food production, and enhance the efficiency of the production and distribution chain. In order to ensure a smooth transition to market prices, adjustments to administered prices need to be gradual. The Bank’s forecast of 2.5-3% average inflation in 2008 has built in some administered price adjustments. The upside risks to this projection would be dependent on the degree to which the increase in global prices have an impact on domestic prices and the extent to which administered prices are adjusted.

There have been increased uncertainties surrounding global economic and financial conditions. After evaluating the evidence on the downside risks to growth and the upside risks to inflation, the Bank has decided to maintain the current stance of monetary policy.

Bank Negara Malaysia
29 Apr 2008

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