A MORE flexible exchange rate policy will not address the structural problem of uneven world economic growth, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
Zeti said it was the change of trade flow that caused an imbalance in economic growth globally instead of exchange rates. Adjustments in exchange rate policies would affect financial flow but not trade flow, she told the Capital Market Summit in Kuala Lumpur yesterday.
“It is unlikely that changes in exchange rates are going to result in structural changes in the global environment,'' she said in response to the international community's recent call for China to adopt a more flexible exchange rate policy.
Observing the demographic trends in some countries, Zeti expects intra-Asia trade to increase as a result of strong consumption in countries like China, India, South Korea, and even Japan, and generate higher demand for imported goods.
Consequently, this would divert trade away from the US, which was currently a large importer of Asian goods, she said.
She added that two-way trade volume with South Korea, China and India had increased dramatically.
Trade numbers from the Statistic Department show that intra-Asia trade accounts for one third of Asian exports.
Zeti also said economic strength and a resilient financial system were the critical factors helping a country to accommodate the external structural changes.
Policy makers, she said, should not overly rely on demand management to address structural problems because this would lead to 'over adjustment'.
On interest rate trends, Zeti said the central bank would keep interests rates low to provide a pro-growth environment because of excess capacity and low inflation.
On the consolidation of local banks, she said there was no urgency for mergers to take place within any time-frame.
“The priority for local banks is to improve efficiency so that products can be provided at lower costs and are of world-class,'' she added.