In contrast, during periods of capital inflows, it is natural for reserves to be accumulated. Reserves play a role in both circumstances to manage adjustments in the financial markets. This includes ensuring the stability of the exchange rate is preserved. This is how we maintain orderly market conditions. Malaysia’s level of foreign exchange reserves is adequate for our stage of economic development, domestic market structure and external position. Malaysia’s reserves is well-within the adequacy range, placing us in a comfortable position relative to regional peers and fulfilling recognised global standards. Malaysia’s long-term growth prospects also remain favourable. These are reinforced by both naturally occurring domestic economic trends and policy consideration, deliberation and action. Malaysia will also continue to reap its demographic dividends and benefit from a young and productive population for the foreseeable future. As education and income levels continue to rise, an increasingly affluent and informed consumer group would emerge – providing additional impetus for economic growth. Time and again, Malaysian policymakers have continuously supported growth by removing structural impediments and promoting an enabling environment for new growth areas to flourish. Strong banking sector and financial market that intermediate business needs. Malaysia’s diversified and well-developed financial sector can intermediate the business and economic needs of the country, enabling businesses to flourish. Malaysia’s banking sector is one of the strongest and most developed in Asia. Banks are wellcapitalised, with capital in excess of the minimum regulatory requirement of Basel III.

Moreover, the influence of demand on prices will also depend on future changes in the epidemiological situation, the pace of recovery processes when vaccines become widely used, and an improvement of consumer sentiment and business expectations. As we could observe in summer and early autumn, when the situation returns to normal, the recovery may be sufficiently quick. At the moment, we consider it too early to adjust our medium-term inflation forecast since it is necessary to also analyse the effect of competing factors on price movements. As regards the near future, our preliminary estimates show that annual inflation will approximate 5% in 2021 Q1. Further on, if the influence of one-off factors diminishes rather fast, it will trend down and return to 4% by mid-2021. Given the accommodative monetary policy pursued, inflation is expected to equal 3.5–4.0% by the end of 2021, subsequently stabilising close to 4%. We will carry out an additional analysis to assess whether there are grounds for adjusting our forecast in February, for the core meeting on the key rate. As regards other risks for medium-term economic development and inflation, their estimate has remained unchanged overall. Various geopolitical risks are still relevant — they may provoke fluctuations in financial markets, affect exchange rate expectations and sentiments, and influence trends in the Russian and global economies. As always, further changes in budget spending are a critical factor. This has a considerable influence on our monetary policy decisions.