Malaysia’s economy grew at a slower pace in Q2 than it did in Q1. Although downside risks for exports have increased, domestic demand should continue to support growth in coming quarters. The upshot is that, provided global demand does not deteriorate sharply, Bank Negara Malaysia (BNM) is likely to tighten further. We see the policy rate reaching 3.5% by mid-2012, from 3.0% now.
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