Business

Thursday July 9, 2009

Bank Negara chief says further interest rate cuts possible


PETALING JAYA: The current overnight policy rate of 2% is appropriate but the central bank is not ruling out the possibility of further cuts, given the uncertainties on the global economic front.

“Right now, under the scenario that we have expected, this is the appropriate interest rate level but we cannot rule out (further cuts) in this uncertain world, what will happen in the external environment,” said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

Speaking at a press conference held in conjunction with the Malaysia-UK Islamic Finance Forum here yesterday, Zeti said despite domestic conditions “being stable”, the external environment remained very uncertain.

Tan Sri Dr Zeti Akhtar Aziz (right) and Lord Mayor of London, Alderman Ian Luder, at the Malaysia-UK Islamic Finance Forum — Bernama

“Therefore, from time to time, we will review the outlook and in particular the external environment and from there, we will decide on the interest rate policy,” she said.

At this point, the central bank’s policy direction is more focused on access to financing.

“The interest rate is already at historical lows and we do not believe that it is a factor that is a constraint on financing,” Zeti said.

On the ringgit, Zeti said there would continue to be volatility in the immediate and short term.

“Just like we see volatility in the major currencies in the international financial system which is determined by financial flows across borders,” she said.

She added that Malaysia had never relied on the exchange rate to gain competitiveness.

“Over the medium term, our exchange rate will continue to reflect our underlying fundamentals and as our underlying fundamentals are expected to improve, then the currency can also be expected to strengthen gradually over time.”

Zeti said improvements in the local economy were expected in the second half and extend into 2010 as the effects of the implementation of the various stimulus packages were felt.

“(The packages) are being aggressively implemented,” she said.

Earlier in her address, Zeti said Malaysia had developed a comprehensive Islamic finance industry founded on a strong legal and regulatory framework.

To sustain the internalisation of Islamic finance, there needed to be development of international Islamic financial markets to enhance the liquidity of the instruments and risk management capacity of players, she said.

“Second, (there needs to be) international cooperation such as partnerships between international financial centres to ensure financial stability of the international Islamic financial system.”

She said it was important that the international integration of Islamic finance be facilitated by mutual recognition of financial standards and products across jurisdictions.

Separately, Zeti said, the central bank had received several enquiries on setting up Islamic banking operations as well as conventional banks from Middle Eastern and Western institutions, with at least two parties expressing interest to partner local institutions.

To a question, she said there had not been any systemic risks arising from the global Islamic finance industry as a result of the financially troubled Saudi Saad group’s debt restructuring.

“Right now, we do not see it having systemic implications on the Islamic financial industry because the inter linkages are not there yet,” she said.

Reuters reported yesterday that privately held Saad group ran into difficulties in June, prompting the Saudi central bank to freeze the accounts of its billionaire chairman Maan al-Sanea.


For Bank Negara statements click here

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