For the fifth consecutive Monetary Policy Committe (MPC) meeting yesterday, policy makers
decided to leave the Overnight Policy Rate (OPR) unchanged at 2%. This was certainly no
surprise and expected by all economists included ourselves. In its policy statement, the
continued stabilisation in economic and financial conditions reaffirmed Bank Negara Malaysia
(BNM) commitment to hold the rate steady. The improving developments also convinced the
central bank that the present monetary policy stance is approriate and will continue to spur
growth. Besides that, the Governor had previously mentioned that the economy will likely
register a positive growth in the year’s last quarter and the hard work will be to sustain the recovery into 2010. With temporary deflation likely to linger in the months ahead, there is ample room for the central bank to keep the interest rate low. Overall, we feel BNM is optimistic on the
economy stablising, although there are many contradicting views from different overseas
entities. This leads us to maintain our economic forecast as following:
1. Real GDP will contract by 3% in 2009 before it recovers by 2.5% in 2010.
2. Inflation will come in at a low of 1% in 2009 and increase slightly to 2% next year.
3. The OPR will be kept unchanged for the rest of the year and next year.
4. The Ringgit will average RM3.50-3.55 per US$ for 2009 and RM3.40-3.45 in 2010.