During the early part of the forecast period Bank Negara Malaysia (BNM, the central bank) will proceed with the normalisation of monetary policy by pushing up its main policy interest rate, the overnight policy rate (OPR). BNM has raised the OPR three times since March 2010, by a total of 75 basis points, bringing the rate to 2.75%, having previously cut it to a record low in response to the dramatic downturn in the Malaysian economy that occurred in 2009. However, the recent sharp appreciation of the local currency, the ringgit, and signs of slower economic growth suggest that the central bank will not move aggressively on interest rates in the coming quarters. As BNM does not expect inflation to rise to problematic levels in 2011, we do not expect the OPR to be raised this year to a level higher that the rate of 3.5% at which it stood during 2007 and much of 2008. Nevertheless, during the remainder of the forecast period, as the pace of domestic demand growth quickens, BNM is likely to push rates higher to contain inflationary pressures.