Bank Negara sticks with Malaysia growth target

Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz

WASHINGTON: Malaysia will meet its economic expansion target even as risks to global growth mount and greater volatility may persist in capital flows, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said.

Price pressures are “quite contained” due to lower fuel and commodity costs and slightly slower demand, Zeti said in an interview here last Saturday. Until there is more clarity to the growth and inflation outlook, the current monetary stance remains accommodative and supportive, she said.

Zeti, who leaves her position at the end of the month when her term is up, has helped to curb inflation and keep monetary policy steady to support domestic demand.

“We have a high degree of confidence” on the 2016 growth target of 4% to 4.5%, Zeti said. While fuel prices may remain lower for some time, Malaysia’s diversified economy that focuses on more consumption-led industries than exports, and reduced dependence on energy revenues means “we are affected but to a much lesser extent than we would have been” in the past, she said.

Global finance ministers and central bankers pledged to step up their efforts to support growth, as chances rise of a broader slowdown and risks including refugee crises and a potential UK exit from the European Union threaten the world economy. Downside risks to the world economic outlook have increased since October, raising the possibility of a more generalised slowdown and a sudden pull-back of capital flows, the International Monetary Fund’s top policy advisory committee said Saturday.

Malaysia remains “vulnerable” to a reversal of capital flows though buffers such as a highly-developed bond market and strong financial intermediaries have helped to achieve adjustments in the exchange rate and in reserves, she said. The “prediction is greater volatility. That will continue,” she said.

The global recovery “is much more modest than had been earlier anticipated,” Zeti said. Uncertainty in world financial markets, if it continues, “makes it a challenge for businesses” and they’ll “stay on the sidelines” instead of investing, while households may delay consumption, all of which would contribute to slower growth, she said.

“Having heightened volatility for long periods of time is not conducive to growth,” she said. The ringgit has risen about 10% this year to become the second best-performing currency in Asia, rebounding from a 17-year low. Global funds poured RM6.1bil into Malaysian equities in March, after outflows of RM19.5bil in 2015.

Concerns about the weaker world economic outlook, anticipation of further normalisation of US monetary policy by the Federal Reserve, and fuel price adjustments are among external factors weighing on Malaysia’s currency, according to Zeti. – Bloomberg