Malaysia keeps key interest rate at 2pc

Published: 2009/07/29

Bank Negara Malaysia (BNM) kept its overnight policy rate unchanged at 2 per cent, it said in a statement in Kuala Lumpur today. The decision was predicted by all 23 economists surveyed by Bloomberg News.

The benchmark is at its lowest level since it was introduced in April 2004. BNM said: "Since the previous Monetary Policy Committee (MPC) meeting, signs of stabilisation of the global economy have emerged whilst conditions in the international financial markets have generally improved."

It said that in the advanced economies, while the overall economic conditions continue to remain weak, the pace of decline in economic activity is slowing."There is also evidence of improvements in economic activity in most regional economies," it said in a statement.

BNM said measures to stabilise the financial systems in the advanced countries, combined with the cumulative effects of fiscal and monetary stimulus, have continued to contribute towards a gradual improvement in economic activity in most countries."Conditions in the domestic economy have also shown signs of stabilising in the second quarter, with several indicators such as the industrial production index and retrenchments recording a slower pace of decline," it said.

Going forward, BNM said improvements in labour market conditions and business and consumer sentiments will provide support to domestic demand.In addition, the accelerated implementation of the fiscal stimulus, the continued access to financing and the lower rate of inflation will also contribute to the improvement in the domestic economy in the second half of 2009 and into 2010, it said.

"In accordance with expectations, inflation continued to moderate and turned negative in June. "The decline in inflation is largely a statistical outcome reflecting the sharp rise in inflation in June 2008, when fuel prices increased following the reduction in fuel subsidies." BNM said the negative inflation is expected to be temporary and is projected to turn positive as domestic economic conditions improve.

"The assessment is that with the current low interest rates and with the fiscal stimulus gaining traction, the prevailing policy measures are sufficient to provide support to economic activity." - Bernama/Bloomberg