It has appeared that interest rates have been kept on hold at 2% by Malaysia's central bank for its fourth consecutive policy meeting on Tuesday, as expected.

Bank Negara Malaysia expressed that the recent financial and economic indicators point towards a stabilization in economic conditions.

The bank added that recent deflation had a short effect because of falling fuel prices and easing pressure on food prices.

The central bank specified, "With improving domestic economic conditions and as price pressures are expected to remain benign going forward, the assessment is that the current monetary stance is appropriate and will continue to provide support for economic activity."

In an effort to decrease the impact of the global downturn on the local economy, the benchmark has been scrapped by the central bank by a total of 150 basis points since November. It should be noted that the economy might still contract by nearly 5% this year, in spite of the rate cuts and government stimulus programs. The condition is even more adverse than 1998, when the country was targeted by the Asian financial crisis.

The bank specified that since consumer prices turned negative for two consecutive months from a year earlier, inflation is not a worry, "while fiscal stimulus is only expected to make a visible impact in the fourth quarter."