The Malaysian economy expanded by 7.6% in the first quarter of 2004. The robust economic growth was supported by stronger expansion in private sector demand, both consumption and investment demand, and more buoyant export growth arising from sustained expansion in global economic activity.

Going forward, the economic outlook for Malaysia remains favourable. The sustained expansion in domestic aggregate demand is expected to continue to be reinforced by strong performance of the export sector. On the domestic front, rising consumer and investor confidence and improving earnings of both household and corporate sectors suggest that the upturn in private sector demand would be maintained.

Inflation continues to remain low. The inflation rate, as measured by the Consumer Price Index, rose by 1% in the first four months of 2004. Domestic price pressures are expected to remain subdued, with the recovery in private investment activity seen mainly in capacity expansion in sectors experiencing strong growth. Importantly, higher productivity is supporting real wage growth. Competition is also moderating price pressures.

The underlying fundamentals will continue to accord flexibility for monetary policy to support stronger economic activities, without creating inflationary pressures. Interest rates can remain low for some time to come to support the growth momentum. The overnight policy rate (OPR) will therefore remain unchanged at 2.70%.