Slowing economic growth in Malaysia, coupled with falling commodity prices, will reduce inflationary pressures, central bank Governor Zeti Akhtar Aziz said on Monday. Annual inflation in Malaysia hit 7.7 percent in June, although the central bank has not followed its regional peers in hiking and its policy rate stands at 3.5 percent, where it has done for more than two years.
"The moderation in growth, as we see it, will have some dampening effect on inflation," Zeti told reporters on the sidelines of a forum on Islamic finance and investment. "And in the current environment we are already seeing commodity prices retreat, and as a result of this it will also have less impact on our domestic inflation," she said.
Prices of palm oil have plummeted 38 percent from an all-time high of 4,486 Malaysian ringgit ($1,360) a tonne in early March as weak crude oil spurred profit-taking in agricultural markets and global vegetable oil supplies increased.
Zeti said the central bank expected price pressures to ease considerably next year. "This adjustment in prices that we have seen in our own domestic economy is the first round effect, and what we need to monitor is the second round effect," she said. "And with the moderation in growth, we expect that inflation will moderate next year, particularly in the second half of the year." Zeti also said that the recent fall in the Malaysian ringgit, which hit its lowest in 2008 on Monday, reflected the movement in other major currencies world-wide.