The Malaysian economy expanded at an annual rate of 6.8% in the third quarter of 2004, raising the real GDP growth in the first three quarters of 2004 to 7.6%. Growth was supported by strong expansion in private sector demand, both consumption and investment, and continued expansion in exports.

Going forward, the economic outlook for Malaysia remains favourable. The export sector is expected to continue to support growth in an environment of greater resilience of the world economy to higher oil prices and amidst expectations for a moderation in global demand for IT products. On the domestic front, private sector demand is expected to be supported by rising disposable incomes, positive investor sentiment, stable employment conditions, favourable commodity prices and improved earnings of the corporate sector. The expansion of the Malaysian economy continues to be well supported by strong underlying fundamentals.

Inflation, as measured by the Consumer Price Index, rose at an annual rate of 1.6% in the period July to October 2004, reflecting the impact of higher transportation charges following the increase in retail petrol prices and the impact of higher taxes on cigarettes and alcoholic beverages. Nevertheless, inflation is expected to average at or below 1.5% in 2004 (January – October: 1.2%). The continued improvements in productivity growth, a more competitive environment and adequate expansion in capacity are factors that will reduce the inflation risk for Malaysia.

The current stance of monetary policy will therefore be maintained to support growth. The overnight policy rate will continue to remain unchanged at the current level of 2.70%.