Bank Negara Malaysia today announced that the Overnight Policy Rate (OPR) is raised by 25 basis points to 3.50 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly increased to 3.75 percent and 3.25 percent respectively.

With strong growth in world trade projected in 2006, Malaysia will benefit directly through higher exports, as well as better terms of trade due to the higher prices for Malaysia's commodity exports. Domestic spending is expected to be sustained. Consumer spending is expected to be well supported by steady employment and income growth, favourable credit conditions, and the positive effect of the favourable external performance.

The current higher prices reflect rising costs and there continues to be limited evidence of the second-round effects. Based on present and future expectations, the policy rate will therefore only need to respond to new developments and information that become available going forward. Inflation is expected to be higher in the first half of 2006, and moderate during the second half of the year. This current rise in inflation has been built into the earlier forecast of average inflation for 2006.

At this new level, the OPR continues to be below the neutral level. Going forward, monetary policy will balance the risks to price stability and sustainable economic growth.

The MPC also decided that the decisions of future MPC meetings will be informed to the public through a press release on the same day.