MONETARY POLICY TO FOCUS ON PROMOTING SUSTAINABILITY OF ECONOMIC RECOVERY

KUALA LUMPUR, March 24 (Bernama) -- Monetary policy in 2010 will focus on
promoting the sustainability of economic recovery and ensuring that financing
continues to be available to the private sector at a reasonable cost.

Given the lingering uncertainties surrounding the future growth path of the
global economy, an accommodative monetary policy stance will be maintained to
support and strengthen private investment and consumption demand and thus
overall economic growth, Bank Negara Malaysia (BNM) (central bank) said in its
Annual Report 2009 released here Wednesday.

It said domestically, the Malaysian economy is expected to stengthen.

The ongoing improvement in consumption and investment activities will boost
domestic demand and raise national output closer to the productive potential of
the economy.

BNM said the government has announced plans for gradual consolidation in its
fiscal position in 2010.

Nevertheless, the overall fiscal policy remains expansionary and will
continue to lend support to the recovery process.

External demand, particulary from regional economies, will also sustain
trade and economic activity.

Accordingly, the prevailing negative output gap will narrow as domestic
demand increases.

It said inflation is expected to rise in line with the recovery in economic
activities.

Nevertheless, given that output is recovering from low levels, the resultant
pressures on inflation from the narrowing output gap are expected to be limited.

The central bank said core inflation is likely to exhibit a modest upward
trend and is not expected to be a source for policy concern.

On the supply side, it said, the government has announced its intention to
undertake a comprehensive review of the subsidy delivery system.

The restructuring of the subsidies and the re-emergence of rising global
energy and food prices could generate some upward pressure on domestic
inflation, it said.

However, BNM said, the assessment is that the potential impact on consumer
prices is likely to be transitory and manageable.

It said with the threat of a fundamental recession having now diminished,
the Monetary Policy Committee raised the overnight policy rate by 25 basis
points in March 2010 towards normalising monetary conditions.

Conditions in the domestic money market were generally stable in 2009.

The Malaysian money market continued to operate under a surplus liquidity
environment, with aggregate surplus liquidity declining only slightly from RM261
billion (US$1=RM3.3) as at end-2008 to RM252 billion as at end-2009.

In 2009, conventional monetary operations accounted for 77 per cent of the
total operations, while Islamic monetary operations accounted for the remaining
23 per cent.

The scale of Islamic monetary operations was in line with the size of the
Islamic banking system in Malaysia which has increased to 19.6 per cent of total
assets of the banking system as at end-2009 (17.4 per cent as at end-2008).

-- BERNAMA



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