At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) to 2.25 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2 percent and 2.50 percent respectively.
The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions. Economic activity in the advanced economies has improved although growth is expected to remain modest. Emerging economies, however, are recording a stronger recovery. In particular, regional economies expanded strongly in the fourth quarter of 2009 and the growth momentum is expected to be sustained.
In the domestic economy, the stronger growth performance in the fourth quarter of 2009 affirms that the economic recovery is firmly established. Going forward, growth is expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies.
Prices will gradually increase during the year, reflecting the prevailing economic conditions and taking into account possible adjustments in administered prices. While external factors, including rising global commodity and food prices, may exert some additional upward pressure on domestic prices, inflation is expected to remain moderate in 2010.
The OPR was reduced to historic lows in early 2009 as a key measure to avert a severe and fundamental economic downturn.
These conditions no longer prevail. The domestic economy has since improved significantly and is now on a path of recovery.
Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process.
At the new level of the OPR, the stance of monetary policy continues to remain accommodative and supportive of economic growth.