Malaysia uses holistic approach for monetary policy


  • Business
  • Wednesday, 19 Nov 2014

KUALA LUMPUR: Bank Negara uses a holistic approach to formulate Malaysia’s monetary policy by looking at various factors based on current and future economic conditions, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

Responding to a question on whether Japan’s recession would have an impact on the normalisation process of Malaysia’s interest rates, Zeti said: “Monetary policy is a forward-looking policy, so, we will look at not only current conditions but also future conditions.

“Therefore, we have to make further assessments of the temporary factors which led to the slowdown in Japan’s growth, or any other major country, and then, we have to also look at their policy flexibility – whether they have the capability in adjusting policy measures,” she told reporters after delivering a keynote address at the inaugural International Statistical Institute Regional Statistics Conference here yesterday.

Japan, a major trading partner of Malaysia, saw its economy unexpectedly slip into recession in the third quarter, with its gross domestic product shrinking by an annualised 1.6% after plunging 7.3% in the preceding quarter. This was due to the increase in the country’s national sales tax, which dampened consumer spending.

Bank Negara, at its monetary policy committee meeting early this month, had maintained the overnight policy rate (OPR) at 3.25%.

There were expectations that the central bank would raise the OPR next year amid rising inflation, but somewhat healthy growth prospects.

In her keynote address, Zeti said that while the recent global financial crisis had necessitated a substantial policy focus to address short-term challenges, policymakers would also need to keep sight of the economy’s long-term vision.

“Continuous structural reforms are needed to strengthen fundamentals and improve economic resilience,” Zeti said.

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