‘Monetary policy based on domestic consideration’

KUALA LUMPUR: Bank Negara governor Tan Sri Zeti Akhtar Aziz said any changes in Malaysia's monetary policy will be based on domestic consideration while stressing that the economy is still staying on a steady growth path.
Due to softening economic growth, economists have started to predict that the central bank may start to cut the overnight policy rate by 25 to 50 basis points in the second half of the year.
Zeti however said in a panel session titled "Malaysia's Economic Agenda – Is It Enough" at Invest Malaysia 2015 yesterday, that market volatility is mainly driven by uncertainty over the normalisation of the US interest rate.
"I believe the market will finally stabilised, but until that happens, we'll still see volatility," she added.
Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar and Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar were panelists in the session presented by Zeti.
Commenting on Fitch Ratings' warning of a potential downgrade in Malaysia's credit rating, Zeti is of the view that the country's fundamentals are still intact.
"Looking at our peers, we're at least as good if not better in terms of growth prospects, we've been on a steady growth path of between 4% and 6%,"she said.
She said Malaysia's solid financial system and highly developed bond market could help Malaysia to adjust to the volatile capital inflows and outflows.
"Our fiscal position has shown track record over reduction in deficit, our external indebtedness is relatively low compared with some of our peers," she added.
Fitch Ratings has said Malaysia' credit rating is "more than 50% likely" to be downgraded due to worsening trade balance and 1 Malaysia Development Bhd (1MDB) struggles to meet its debt obligations.
Zeti said Malaysia is improving its fiscal position through subsidy rationalization, which has generated a savings of more than RM20 billion for the government, and the implementation of the Goods and Services Tax (GST).
Wahid said Malaysia has gradually reduced its dependency on oil revenue, which came down to 30% of total government revenues as compared with 41%, a few years ago.
"This year we expect (it to drop to) 20% and it shows the government is consistently diversifying the economy," he added.
Zeti said the unprecedented and divergent monetary policy in the major economies have resulted in significant policy spillovers to other parts of the world.
"Against this backdrop, the financial markets are therefore expected to remain in a state of heightened volatility during the year," she noted.
On another note, Zeti has urged the politicians to look beyond the immediate term in managing economy and financial systems.
"If you're reacting rather than preempting, then you're too late already," she said.