Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

In the recent months, global economic and financial conditions have deteriorated following the escalation of the sovereign debt crisis in Europe, the ongoing fiscal consolidation and the significant policy uncertainties. Heightened market volatility, impaired financial intermediation and weak labour market conditions continue to weigh down on growth in the advanced economies. These conditions pose downside risks to global growth. In Asia, while growth continues to be supported by sustained domestic demand, the growth momentum has moderated amid the weaker external environment.

In the domestic economy, the latest indicators point towards continued expansion in the fourth quarter of 2011. Growth was driven by sustained domestic consumption and investment activities, while the external sector showed signs of moderation. Looking ahead, the economy is expected to continue to expand, underpinned by sustained private sector economic activity and further reinforced by public sector spending. Employment conditions are expected to remain stable while the outlook for domestic-oriented sectors continues to be favourable. Overall growth prospects, however, would be affected by the slowdown in external demand, resulting in slower growth in exports and industrial production.

Domestic headline inflation averaged 3.2% in 2011. Going into 2012, the assessment is that cost-push inflation will moderate as slowing global economic activity will alleviate the pressure on the prices of key commodities. The impact of domestic demand factors on inflation is expected to be contained, in line with stable domestic demand conditions. Headline inflation, therefore, is expected to moderate in 2012. Nevertheless, risks to inflation could emerge arising from supply disruptions that would result in higher food and commodity prices.

In the MPC's assessment, the global environment will become more challenging going forward. As Malaysia's economic growth and inflation prospects will be affected by these external developments, the MPC will continue to assess carefully the risks to domestic growth and inflation.