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Malaysia plans fuel price cuts to boost economy

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October 15, 2008

Malaysia plans fuel price cuts to boost economy
Malaysia's government said on Tuesday it will cut petrol prices again and is set to announce measures to boost the economy, although it will not change its 2009 budget and insisted economic growth was on track, reported Reuters.

Malaysia has so far been little affected by the global credit crunch and the central bank has left interest rates unchanged for over two years while other Asian countries have moved aggressively to fend off the risk of financial contagion.

Earlier in the day, the central bank said financial institutions here had "negligible" exposure to problem assets and institutions, though it stood ready to act if necessary.

Finance Minister Najib Razak said although Malaysia had not been hit badly by the global financial crisis, he would implement measures to strengthen the economy, although he did not specify what measures needed to be taken.

In a separate announcement, Prime Minister Abdullah Ahmad Badawi said the cost of fuel would be cut by 15 sen to 2.30 ringgit ($0.658) a litre and diesel prices will be cut by 20 sen to 2.20 ringgit per litre from Wednesday. This will be the third cut since prices were hiked earlier this year.

World oil prices CLc1 have fallen to $83.71 per barrel from a peak of $147.27 in July, and that, combined with lower subsidies, pushed inflation in Malaysia to 8.5 percent in August, a near 27-year high.

One economist said the government's new economic measures would be timely.

"It's about time. I suspect there could be fiscal measures but with revenues from commodity and electronics exports falling, it is hard to see where the extra funds are going to come from," said Citigroup analyst Zhang Kit Wei, who follows Malaysia.

"The commodity price collapse is the biggest risk to Malaysia," he said. Najib, who is set to become prime minister next March, rejected calls by opposition leader Anwar Ibrahim to revise 2009 budget.

"The government will always monitor the situation and several latest measures in the form of a stabilisation plan are being finalised, which I will announce next Monday," said Najib.

"I want a complete announcement not piecemeal," he said outside parliament, adding there was no need for a new deposit insurance scheme.

Anwar, in his a speech in parliament on Monday, asked the government to revise the budget which he said had become obsolete since it was presented in late August.

"This is the first time in Malaysian history that we are forced to debate a budget where the facts and figures are known to be different from those in reality," he said on resumption of debate on Tuesday.

Malaysia's government has remained upbeat about the economic prospects for the commodity, oil and electronics exporter and sees growth at 5.7 percent this year and 5.5 percent in 2009.

Economists are warning however that 2009 could be worse than expected and leading Malaysian bank CIMB recently cut its growth forecast for next year to 3.0 percent from 5.0 percent.

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