Bank Negara says sufficient measures to keep household debt at prudent level

Bank Negara Malaysia deputy governor Datuk Muhammad Ibrahim : "We have now reached a critical juncture in our migration to e-payments.

LABUAN: Bank Negara Malaysia (BNM) is confident that the series of measures introduced in the last couple of years are sufficient to maintain the current household debt at the prudent level.

Currently, the nation's household debt stands at 89.9 per cent of the gross domestic product, among the highest in Asia.

BNM Governor Datuk Muhammad Ibrahim said the household debt was one of the areas being monitored by the central bank on a regular basis.

"There are many ways of managing high household debt. One of the instruments that we use is the macroprudential measure, in many forms. We do not prescribed to any particular target (for the household debt), we basically outlined what are the principles that should be adopted by our banking institutions if they want to be prudent. 

"So, they will decide which areas they want to give the loans to, which sectors they want to go into and adopt the strategy in accordance with their business and the structure of their funding," he told reporters after the launch of the Labuan Financial Services Authority 2016 report here, today.

He said BNM was also monitoring to make sure that those people who are eligible and want to borrow always get access to financing.

"And our recent decision to cut the overnight policy rate (OPR) is to ensure that our economy will keep on growing in the second half of this year and beyond.

"Yesterday (Sunday), one of our big banks has announced that there will be a 20-basis point cut in their loan. That is good because it will basically incentivise financing and borrowers will have additional money to spend. That should induce spending and the economy should benefit from that," he said.

Muhamad said to ensure that the economy stayed in a healthy lane, it was very important to keep employment and income growing. 

"If we have this two criteria, I think household debt will be at a prudent level. Of course, we want to see it (household debt) going down, but as long as these two factors continue, we are okay.

"We would like to see the household debt improving, but more importantly, we want employment and income to continue growing because when this happens, then the people's wealth and well-being will improve," he added.

Meanwhile, Muhammad said the central bank decided to cut the OPR by 25 basis points in July to give enough time for the monetary policy transmission to work its way into the second half of this year. 

"I think that's the reason why we did it on July. If we do it in September, it would impact the economic growth, but it would not impact as much if it's done in July," he said.

He said the various opinions by economists and fund managers on the OPR cut were good signs as it showed that they were looking at the economic data from different perspectives.

"The economists and analysts have their own views. They will read our statement and they formed their own judgments. 

"Some say there will be a series of interest rate cut (after this), some say the central bank will cut interest rate and pause for a while to see how it will impact on the economy. Some say this (OPR cut) will be the second last for this year, there will be one more," he said. 

However, as far as the Monetary Policy Committee (MPC) is concerned, Muhammad said they will look at the data presented at the current MPC meeting and would decide accordingly. 

"We always keep an open mind, we don't have a pre-conceived idea on what we should do until we look at the data presented to us," he added. - Bernama

* See also BNM governor: Labuan must diversify economy