Bank Negara leaves OPR unchanged at 3.5%

PETALING JAYA: Bank Negara Malaysia’s monetary policy committee meeting has decided to leave the overnight policy rate (OPR) unchanged at 3.5% after evaluating the evidence on the downside risks to growth and the upside risks to inflation.

In a statement issued Tuesday, it said latest available data from major industrial economies indicated a moderation of economic activity in these countries and this was likely to lead to slower global growth in the months ahead.

“While the slower external demand will have some moderating impact on the Malaysian economy, growth continues to be supported by an expansion in domestic demand,” it said.

The central bank said the strong imports of capital goods, manufacturing investment approvals and foreign direct investment inflows indicated sustained investment activity.

Bank Negara said despite the global financial turmoil, domestic credit conditions were still favourable as demand for financing was underpinned by ample liquidity in the financial system.

However, it expressed concern that global energy and food prices have risen sharply since the beginning of the year from their already high levels.

It added a big uncertainty at this stage was the extent of the moderation in global economic activity and the impact it would have in reducing global price pressures.

Bank Negara said domestic food prices had risen due to the increase in global prices. It added the increase in food prices was a structural phenomenon that required measures to ensure adequate supply, creation of appropriate incentive structures to promote higher food production, and make the production and distribution chain more efficient.

To ensure a smooth transition to market prices, adjustments to administered prices need to be gradual, it said.

“The bank’s forecast of 2.5% to 3% average inflation in 2008 has built in some administered price adjustments,” it said.

However, the upside risks to this projection would hinge on the degree to which the increase in global prices have an impact on domestic prices and the extent to which administered prices are adjusted, it said.