At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 2.75 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.50 percent and 3.00 percent respectively.

The global recovery has continued in the second quarter, supported by robust and broad-based growth in most emerging economies, in particular Asia , and a moderate recovery in the advanced economies. Nevertheless, volatility in the international financial markets has increased following concerns over the ongoing sovereign debt crisis in several advanced economies. These developments have raised uncertainties on the potential impact on the international financial system and the global economic activity. Going forward, while the assessment is for the global recovery to continue, there is increased risk that the global growth momentum could moderate.

In the domestic economy, recent trends in industrial production, financing activity, labour market conditions and external trade indicate that economic activity has remained robust in the second quarter. Going forward, while external developments may result in some moderation in the pace of growth, the domestic economy is expected to remain strong with continued improvements in private consumption and investment, and augmented by public investment spending.

Domestic inflation recorded modest increases in April and May, mostly on account of supply factors. Prices are expected to rise at a gradual pace in the coming months, in line with the continued improvement in domestic economic conditions, and taking into account possible adjustments in administered prices. Overall, inflation is, however, expected to remain moderate going into 2011.

The MPC considers the new level of the OPR to be appropriate and consistent with the current assessment of the growth and inflation prospects. The stance of monetary policy continues to remain accommodative and supportive of economic growth.