The Malaysian economy expanded 4.6% in the first quarter, just shy of the 4.8% expected by most economists, while inflation in April quickened to 3.2%.
Despite the slow start, Bank Negara is keeping its full-year forecast of 5% and 6% growth for 2011.
“We have already priced in this slower growth in our forecast,’’ governor Tan Sri Dr Zeti Akhtar Aziz told a media conference today.
She said the domestic economy is expected to remain on a steady growth path for the rest of the year, driven by the private sector and supported by the public sector.
“Policy is directed to provide a positive enabling environment and positive investment climate to sustain this growth,’’ she said.
But the job does not get any easier for policymakers, as they juggle the need to keep the economy chugging along and trying to put the lid on rising prices.
Earlier this month, Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 3%.
With inflation gaining traction, the real rate of return for savers has turned negative again.
Zeti, however, said the situation would be “temporary”.
“But what is more important is that the current interest rate is appropriate to support growth and contain inflation,’’ she said.
Malaysia’s gross domestic product (GDP) had cooled down for the fourth consecutive quarter, while prices of food and cost of transportation continued to spike up in recent months.
Bank Negara expects inflation to average at the top end of its earlier prediction of between 2.5% and 3.5% this year.
A natural disaster in Japan, elevated commodity prices, sovereign debt crisis in Europe and unpredictable flows of money from overseas during the first quarter of the year had increased the downside risk to the global economic recovery.
With major economies in shambles, investors shifted more money into emerging markets, including Malaysia.
Portfolio inflows have gathered pace in recent months, Bank Negara figures showed.
“The ringgit’s performance is mainly driven by external developments,’’ Zeti said, assuring that the central bank has put in place a robust and near real-time surveillance to monitor the flows.
There is some merit to the argument that a strong ringgit would blunt some of the impact of imported inflation, although policymakers said they do not rely on foreign exchange rate to control prices because of its volatile nature.
