Malaysia's central bank held its overnight policy rate (OPR) steady at 3.0 percent, as expected, but said the weak global economy may impact the country's economic growth though domestic demand continues to support growth.
The Central Bank of Malaysia, which has held rates steady since June 2011, said domestic demand in emerging economies remains a important source of growth for the global economy but the prolonged weakness in the "external environment has begun to affect domestic economic activity in these economies."
"For the Malaysian economy, domestic demand has continued to support growth amid the continued moderation in external demand. The sustained weakness in the external sector may, however, affect the overall growth momentum," the central bank, known as Bank Negara Malaysia, cautioned.
Malaysia's Gross Domestic Product contracted by 4.9 percent in the first quarter from the previous quarter for annual growth of 4.1 percent, down from 6.5 percent. The bank has forecast growth of 5-6 percent this year compared with 5.6 percent in 2012.
But the central bank said private consumption in Malaysia is still expected to remain steady, underpinned by higher incomes, while capital spending in domestic-oriented industries and infrastructure projects will support investment
Malaysia's inflation rate rose slightly to 1.8 percent in May from 1.7 percent but the central bank said it should rise in the second half of the year due to domestic supply and cost factors.
"Pressures from global commodity prices are also likely to be contained given the moderate global growth prospects," the central bank said.