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November 18, 2008

Malaysia slashes fuel costs by 7%
Malaysia is to cut the cost of fuel for the fifth time since prices were hiked in June, reducing unleaded petrol prices by 7 percent and diesel by 7.3 percent from Tuesday due to falling global oil prices, reported Reuters.

The cuts bring petrol costs to levels that are down 26 percent from peaks hit when the government slashed subsidies to rein in a ballooning budget deficit earlier this year, driving inflation higher.

The government said in a statement faxed to state news agency Bernama that the price of petrol would fall to 2.00 ringgit per litre for the RON 97 blend from 2.15 ringgit and that the cost of diesel would fall to 1.90 ringgit per litre from 2.05 ringgit.

The move follows a series of agreements between the government and supermarket chains and restaurants to reduce the price of consumer staples such as food as it seeks to reduce inflation from near-27 year highs.

"The government hopes that traders will reduce prices of goods so that the people will benefit from lower fuel prices," Deputy Prime Minister Najib Razak said in the statement, issued on Monday.

The price rises come as the cost of oil has fallen to $56.10 a barrel CLc1 from a peak of $147.27 a barrel in July. Malaysia in June slashed subsidies to rein in government spending and prices rocketed by 41 percent. Petrol prices peaked at 2.70 per litre.

The hike in prices pushed inflation in July and August to 8.5 percent, although it has fallen since to 8.2 percent and is forecast to fall to 7.8 percent year-on-year when October data is released, according to a Reuters poll.

The cut in fuel prices came after the government announced a raft of measures to shore up the confidence of voters as it sees economic growth plunging to 3.5 percent in 2009 from 5.4 percent seen this year.

Many investment banks say that growth will be slower than that and Malaysia's RHB said in a report this week that growth would be just 1.5 percent.

Najib recently announced tax cuts in a revised budget for next year and the government said it would ease tariffs on raw material imports.

Najib will become prime minister in March and has to deal with the economy at the same time as rebuilding confidence in a government that in March stumbled to its worst ever election result, losing its two-thirds parliamentary majority.

Rising prices have pushed the economy to the top of Malaysians' worries, according to a recent poll. A survey by the Merdeka Center, 50 percent of Malaysians are now worried about the economy, compared with 25 percent a year ago.

Opposition leader Anwar Ibrahim, a former finance minister, gets the most favourable rating among politicians on ability to handle the economic woes.

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