Bloomberg, Bank Negara Malaysia, rate adjustment and economic growth

In an interview with Bloomberg, the Bank Negara Malaysia (BNM) governor, Tan Sri Zeti Aziz again reiterated ‘BNM is not going to “run the economy to the ground” to achieve low inflation. Risks to growth have to be taken into account.” The reason Bloomberg or any other media asking this question is because they wanted to be able to guess when the next hike in rates would be coming. This is especially after the 25 basis points hike in July and the next upcoming potential 18 September or even the final monetary policy meeting on November 6.

In the same interview, Zeti said the following too:

‘We will look at what the risks are to inflation and the underlying inflation, rather than one-off adjustments that result in higher prices.’

‘Obviously, we’re not going to run the economy to the ground to achieve low inflation, we look at the risks to growth as well.’

In terms of inflation, Zeti said the CPI will increase this year and next due to GST but this is likely to be temporary. In fact, recently Malaysia scored highest in terms of inflation in the latest World Competitiveness Report by the World Economic Forum because of its low inflation growth rate. Potentially, BNM is expecting inflation to be between 3 to 4 percent and this may potentially rise above 4 percent but it is likely to stabilise in the region of 3 percent. She said that the monetary policy would continue to focus on normalisation of interest rate because the current prevailing rate is to support growth. As long as growth is positive and strong, it will provide another opportunity for rate adjustments. On Ringgit, she warned that currencies do not reflect the fundamentals from day to day. As usual, it will be affected by financial flows from events that unsettle the market. Thus, Malaysia is definitely not immune to these developments.

Looking at everything said above, as well as some of the latest reports, my personal conclusion is that without any huge event happening in the world, Malaysia’s growth would continue. This is despite the gloomy outlook said by many of the Facebook comments and yet when you look at PTLM’s page or even Property Insight’s Facebook page, it seems everyone is still eagerly going into the property market! Looking at the rate adjustment, do note that rate adjustments will be up if growth is continuously robust. If rates are maintained, it simply meant that BNM still does not think that the adjustment is necessary yet as it wants to accommodate the growth. Next week rate adjustment? No idea but based on all the signs, not yet.

written on 7th Sept 2014

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