The growth of the Malaysian economy in the first quarter was within expectations. The private sector continued to be the key driver of growth, as the public sector consolidated its fiscal position. Going forward, the near-term outlook for Malaysia remains positive. Consumer spending is expected to remain robust and private investment is expected to be sustained as companies expand capacity. On the external front, global growth is expected to continue to support the growth of the Malaysian economy.

The inflation rate is expected to edge upwards in the next few months, before moderating in the later part of 2005. The increase in prices reflects adjustments in costs arising from higher input prices such as higher commodity and oil prices. There are no signs that strong demand pressures are a source of inflationary concern. Growing productivity and capacity expansions are also playing a role in mitigating inflationary pressures. Price developments will be closely monitored to ensure that Malaysia continues to enjoy sustainable economic growth in an environment of price stability.

The lack of strong demand pressures allows monetary policy to continue to remain accommodative to support economic growth. The overnight policy rate (OPR) will therefore remain unchanged at its current level of 2.70%.