Bank Negara Malaysia (BNM, the central bank) left its benchmark interest rate, the overnight policy rate (OPR), unchanged at 2.75% on January 27th, following a scheduled monetary policy meeting. In a statement that was published after the meeting, the committee said that it considered the present level of the OPR to be consistent with stable economic growth and inflation, and that monetary policy remained accommodative. However, the BNM is becoming increasingly concerned about the impact of large international capital flows, which pose growing risks to macroeconomic and financial stability. The central bank said that so far the build-up of liquidity in the domestic financial system had been manageable. But it also made clear that it was considering tightening reserve requirements and strengthening curbs on bank lending to prevent macroeconomic and financial imbalances.

The BNM's stance has been relatively relaxed recently owing to the fact that inflation has remained moderate and there has been no evidence of excess demand in the economy. Domestic activity is firm, but external demand from advanced economies remains modest. Inflation is picking up, largely because of supply factors, including higher global commodity and food prices, although the appreciation of the ringgit is reducing imported inflation. Monetary growth is not excessive rapid at present, with one of the narrower measures of money supply, M1, expanding by 11.7% year on year in December, and a broader measure, M3, rising by 7% in that month. This compares with increases of 17.8% year on year in M1 and 14% in M3 in the second quarter of 2008, just before the onset of the global financial crisis. Growth in bank lending is firm, with loans outstanding to households increasing by 13.4% year on year in December and loans to businesses up by 9.4%.