Titled as "ECONOMIC AND FINANCIAL DEVELOPMENTS IN MALAYSIA IN THE THIRD QUARTER OF 2011", Bank Negara Malaysia (BNM) review some interesting facts on the status of our economy and the market outlook going forward. The announcement was chaired by Central Bank's governor to address the media after the closing of Bursa Malaysia.
Growth improved in the third quarter
Despite the challenging environment, Malaysian economy registered a higher growth of 5.8% (2Q11: 4.3%), due to stronger domestic demand. The robust domestic demand was driven by an expansion in both household and business spending as well as higher public sector expenditure. Manufacturing sector recording a significantly better performance supported by firm regional demand for resource-based products, coupled with the normalisation in supply chain disruptions arising from the Japan natural disaster.
The headline inflation rate, as measured by the change in the Consumer Price Index (CPI), rose to 3.4% on an annual basis in the third quarter (2Q 11: 3.3%). The increase in consumer prices was largely the result of higher prices in the food and non-alcoholic beverages category.
Current account recorded a larger surplus of RM26.6 billion, equivalent to 12.5% of GNI due to a higher goods surplus and lower income deficits. As at 31 October 2011, International Reserves position had increased to RM429.1 billion, equivalent to USD134.8 billion, sufficient to finance 9.9 months of retained imports and is 4.1 times the short-term external debt.
Monetary policy is supportive of economic activity
The Overnight Policy Rate (OPR) was left unchanged at 3.00% in the third quarter of 2011, following a 25 basis points increase in May. The stance of monetary policy is consistent with the assessment of heightened uncertainties arising from global developments that have created greater downside risks to growth.
The ringgit depreciated against the US dollar in the third quarter, in line with other regional currencies. The depreciation, mostly in September 2011, reflected mounting concerns over the European sovereign debt crisis and the sustainability of global economic recovery, which led to higher risk aversion and prompted some investors to unwind holdings of emerging market assets.