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with Global Slowdown:
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plans fuel price cuts to boost economy
Malaysia central bank sees room to cut rates
Malaysia will not slip into recession in 2009 and there is still room for rate cuts should the growth outlook worsen, a local newspaper quoted central bank governor Zeti Akhtar Aziz as saying.
"At prevailing rates, there is flexibility for further monetary stimulus to support the economy," Zeti said in an interview with the Business Times when asked whether current rates were low enough to support the economy.
In November, Bank Negara cut its overnight policy rate by 25 basis point to 3.25 percent as the Southeast Asian economy heads for its worst slowdown in eight years.
The Malaysian economy will grow 3.5 percent this year, the slowest pace since 2001, from a 5 percent growth estimated for 2008, according to government forecasts.
"We are not projecting a recession for 2009. Although domestic demand is expected to moderate, it is still expected to be able to contribute to GDP growth in 2009," said Zeti.
"Should external conditions deteriorate further, the government and the central bank have the flexibility to provide further stimulus to our economy," she added.
Deputy Prime Minister and Finance Minister Najib Razak said last month the government was ready to further pump-prime the economy after putting in place a 7 billion ringgit ($2.01 billion) stimulus package.
Najib, who will become prime minister in March, also said that he would tolerate a budget deficit of more than 5 percent as long as it is for only one or two years.
The government has projected a budget deficit of 3.6 percent for 2009 after a 4.8 percent gap estimated for 2008.
While demand for its exports is expected to weaken markedly in 2009, Malaysia's current account balance would remain in surplus of about 10 percent, Zeti told the newspaper.
"The trade surplus is expected to remain sizeable as moderation in exports would be mitigated by slowdown in imports," said Zeti.
She also said the country's international reserves were still considered high despite the recent sharp fall.
"The decline in reserves is mainly due to a reversal of short-term capital flows following deleveraging process by investors," said Zeti.
"Our high level of reserves, which are more than 7 times retained imports and more than three times our short-term debt, continue to be well-positioned to cope with such outflows," she added.
Malaysia's international reserves stood at $96.0 billion as of mid-December, down from more than $100 billion in the first half of 2008.
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