The growth prospects for Malaysia will remain favourable in 2005, with growth being well supported by both domestic and external demand. Domestic demand would be sustained by the private sector as the public sector consolidates its fiscal position. Consumer spending is expected to remain robust and private investment is expected to be sustained as companies upgrade and expand capacity to meet growing demand. On the external side, the global economy is expected to show continued growth in 2005, despite some moderation in that growth rate. Consequently, external demand would continue to support the growth of the Malaysian economy.

The inflation rate is expected to edge up in the first half of 2005 because of changes in administered prices, one-off increases in taxes on tobacco and alcoholic products, and possibly some pass-through from the external sector. These factors are likely to have a transitory effect and inflation is expected to moderate and remain manageable for the rest of the year. Mitigating factors that would prevent inflationary pressures from building up include growing productivity and capacity expansion, as well as a lack of significant general demand pressures.

Therefore, monetary policy will continue to play a supportive role in ensuring that the Malaysian economy continues to grow at close to its potential. The overnight policy rate (OPR) will remain unchanged at its current level of 2.70%.