At the Monetary Policy Committee
(MPC) meeting today, Bank Negara Malaysia decided to raise the
Policy Rate (OPR) by 25 basis points to 3.00 percent. The floor and ceiling
rates of the corridor for the OPR are correspondingly raised to 2.75 percent
and 3.25 percent respectively.
The global economic recovery has continued in the first quarter of the year,
but the growth has been highly uneven across regions. Growth in the advanced
economies during this period has remained modest. In the region, despite
some moderation, the growth has remained strong, supported by robust
domestic economic activity. Global inflation has, however, increased on
account of rising energy and commodity prices. In several countries, further
upward pressure on inflation has been exerted by domestic demand conditions.
Although the global recovery is expected to continue going forward, downside
risks have increased, arising from the potential for higher energy and
commodity prices, possible supply disruptions following developments in
Japan, and the heightened volatility in capital flows to emerging economies.
In the domestic economy, the latest indicators point towards the continued
strengthening of private investment and sustained private consumption
expenditure in the first quarter. The export performance also improved,
supported by regional demand. Going forward, the assessment is for the
Malaysian economy to remain firmly on a steady growth path, with growth
improving gradually during the course of the year. Growth will be
underpinned by the firm expansion of domestic demand. Sustained employment
conditions and income growth is expected to provide support to private
consumption, while private investment is projected to strengthen amidst the
improved investment environment. The developments in Japan are expected to
have a limited impact on the overall domestic economy. Positive prospects
for the region and strong demand for commodities are expected to continue to
support the Malaysian economy.
Domestic headline inflation has continued to increase, rising to 3% in March
to average 2.8% for the first quarter of 2011. The increase was mainly due
to higher food and fuel prices. The assessment is that supply factors will
continue to be a key determinant affecting consumer prices. Global commodity
and energy prices are projected to remain elevated during the year, with
inflation in major trading partners also expected to rise further. There are
also some signs that domestic demand factors could exert upward pressure on
prices in the second half of the year.
With the economy firmly on a steady growth path, the MPC decided to adjust
the degree of monetary accommodation. At the current OPR level, the stance
of monetary policy remains supportive of growth. The future stance of
monetary policy will depend on the assessment of the risk to growth and