At the Monetary Policy Committee meeting today, Bank Negara Malaysia decided to leave the Overnight Policy Rate (OPR) unchanged at 2.00 percent.

Since the previous MPC meeting, signs of stabilisation of the global economy have emerged whilst conditions in the international financial markets have generally improved. 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. 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. Going forward, 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.

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. 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.