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Overnight policy rate unchanged at 3.5%

KUALA LUMPUR, 24 Oct 2008: Bank Negara Malaysia has decided to leave the overnight policy rate (OPR) unchanged at 3.5%.

The decision was made at its Monetary Policy Committee (MPC) meeting today, the central bank said in a statement.

Since the last MPC meeting in August this year, the global economic situation has deteriorated considerably, while the international financial turmoil has yet to stabilise.

Bank Negara said policy makers were focused on restoring the functioning of the international financial markets and avoiding a sharp global economic downturn.

“While the downside risks to global growth have increased significantly, concerns about inflation have subsided as commodity and energy prices declined, and as slower growth sets in,” it said.

The central bank said while the Malaysian financial markets have been affected by these global developments, there is ample liquidity in the domestic financial system and the financial markets have been functioning normally.

Banking institutions are operating with strong capital and liquidity buffers, and have continued to provide financing to the economy, it said.

According to Bank Negara, the current elevated inflation rate reflects the effects of the fuel and other administered price adjustments made earlier this year.

However, the assessment is that inflation has now peaked and is expected to moderate into 2009, it said.

An increasing number of indicators now signal an easing of inflationary pressures, the central bank said.

Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.

The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009, Bank Negara said.

“Malaysia is entering this challenging period from a position of strength following several years of steady growth, reinforced by the current account surplus, the strong reserves position, low level of external indebtedness, and a well-capitalised banking system,” it said.

“In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, Bank Negara will take swift monetary policy action to provide support to the economy,” it added. — Bernama

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