In 2005, the economy is still expected to grow at close to its potential despite a more challenging international environment. A major uncertainty over global growth is the likely impact of persistently high global oil prices. Nevertheless, continued growth in Malaysia’s major export markets, combined with sustained domestic consumption will continue to support growth.

Recent data have shown inflation edging up, reflecting adjustments to rising costs resulting from higher input prices. The inflation level is expected to continue to be affected by cost-driven factors, given the sustained high global oil prices. The cumulative impact of previous price adjustments will cause inflation to peak in the third quarter of 2005, and to moderate thereafter. Productivity increases, capacity expansions and competitive pressures are playing a strong mitigating role in containing inflationary pressures.

In an environment where inflation has increased, the level of monetary accommodation will be balanced to ensure that the maximum sustainable growth is achieved in an environment of price stability. Given the uncertainties associated with both the inflation and economic outlook, particularly in relation to the impact of high oil prices, the balance of these risks will be closely monitored in setting the future course of monetary policy.

The Overnight Policy Rate (OPR) is maintained at its current level of 2.70%.