Zeti: No need to raise interest rate


  • Business
  • Wednesday, 18 Aug 2004

BY P.W. THONG

BANK Negara does not see any need to raise the key interest rate as the economy is not facing any inflationary pressure.  

Governor Tan Sri Dr Zeti Akhtar Aziz said there was no need to emulate what some central banks around the world had done of late with regard to the tightening of key interest rates. 

Zeti said the move by developed economies to raise their key interest rates did not mean that global inflation was accelerating, but was merely a reflection that the risk of deflation had dissipated. 

She added that the hike in interest rates was to bring developed economies to more comfortable levels, and that the move was just removing the inflationary bias and the rise would not entail an aggressive increase. 

Tan Sri Dr Zeti Akhtar Aziz

Zeti said that as Malaysia had never been in fear of a deflation, its key interest rate was not kept to the low levels seen in Japan and the US. 

She was speaking during a question and answer session at a seminar entitled Transforming SMEs: Staying competitive in the new economy in Kuala Lumpur yesterday. The seminar was organised by the MCA Economic Bureau. 

The opposite to inflation, deflation is defined as a persistent decrease in the level of consumer prices or a persistent rise in the purchasing power of money because of a reduction in available currency and credit. 

US Federal Reserve top policymaking group, the Federal Open Market Committee (FOMC), has earlier this month increased its benchmark short-term interest rate for the second time in two months, to 1.5%, after keeping it at a 46-year low of 1% for the past four years 

By comparison, Malaysia's key interest rate, the overnight policy rate, now stands at 2.7%, while the country's key indicator for inflation, the Consumer Price Index, stood at 1.3% year-on-year in June. 

On the banking industry's support for small and medium-sized enterprises (SMEs), Zeti said loans and advances to SMEs had risen significantly in the past two years. 

She said that during that period, a total of RM74bil loans had been approved to more than 125,000 SMEs.  

On access to financing for SMEs, Zeti said the five special funds managed by Bank Negara would still have a low interest rate of 5%. 

Zeti said SME loans were expected to grow at a moderate rate of between 7% and 8% this year, compared with 10% recorded last year. 

Earlier, International Trade and Industry Minister Datuk Seri Rafidah Aziz advised local small and medium-scale entrepreneurs to make full use of the various government incentives available to them, as well as to keep abreast of new policy measures and establish linkages with relevant government agencies. 

Rafidah said SMEs should realise that government support could not act as a substitute to the entrepreneurs' own business acumen, positive attitude and personal direct commitment to success.  

She stressed that whatever government support there was must be regarded as reinforcement and a complement to the entrepreneurs' own efforts. 

Meanwhile, MCA president Datuk Seri Ong Ka Ting said the party could play a more hands on role by working together with MCA state executive councils to help solve problems associated with land conversion, funding, factors hindering development and expansion, and provision of advisory services. 

Ong, who is also the Housing and Local Government Minister, suggested the formation of a task force to assist traditional SMEs make the transition in line with the new global environment. 

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