At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) by 50 basis points to 2.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 2.25 percent and 1.75 percent respectively. The Statutory Reserve Requirement (SRR) is also adjusted downwards from 2 percent to 1 percent effective 1 March 2009 to reduce further the cost of intermediation.

The international economic and financial environment has deteriorated sharply in the recent quarter. The major advanced economies are experiencing a deepening economic contraction, while the regional economies are experiencing a rapid slowdown. The impact of the rapid decline in global demand on trade, production and investment activities in the Asian region has intensified. The turmoil in the international financial markets has also been protracted. While a number of economies have put in place stimulus measures to manage the downturn, their impact on the economy has yet to take effect. The downside risks to the global economic outlook have increased significantly.

The Malaysian economy has been adversely impacted by these global developments. Exports and industrial production have declined steeply, while private investment activities have slowed down in recent months as businesses scaled back their spending. Consumer sentiment has also been affected by the weakening conditions in the labour market. The domestic economic conditions are expected to continue to remain challenging in the coming quarters with the continued deterioration in the global economy. While this has raised the risk of an economic contraction in 2009, the prospects remain intact for an economic recovery once global conditions stabilise given that the economy is not overleveraged, the financial system remains sound, and the external position is healthy.

With inflation on a moderating trend, the task of macroeconomic policy is to support domestic demand until conditions in the global economy show signs of normalisation. Further measures will be introduced by the Bank to ensure continuous access to credit as well as to minimise the impact of the economic downturn on specific affected groups.