KUALA LUMPUR (June 22): Malaysia’s new central bank governor will inherit economic stability with a dose of political uncertainty and global pressures when she takes office.
As a former deputy head of Bank Negara Malaysia who investigated the scandal-plagued state fund 1MDB, Datuk Nor Shamsiah Mohd Yunus is no stranger to central bank watchers in the Southeast Asian economy. They’ll be monitoring closely how she shapes policy under volatile conditions for the global economy and emerging markets.
For now, the Southeast Asian economy is enjoying a fairly stable ringgit, strong growth on the back of higher oil prices, and subdued inflation. The central bank has left its benchmark interest rate unchanged at 3.25% since raising it in January.
Here’s how economists see the job ahead for Shamsiah:
Trinh Nguyen, Natixis
Domestic forces should allow some policy flexibility for Bank Negara under Shamsiah, while external pressures remain, said Nguyen, a senior economist for emerging-market Asia at Natixis Asia Ltd in Hong Kong.
“She is inheriting an economy that is much more solid than before with oil prices robust and consumer demand strong. The removal of GST will add a boost to the consumption sector and also dampens inflationary pressures. That means that it gives the central bank plenty of room to maneuver, such as keeping rates on hold and letting the ringgit absorb some shock as it would help the external sector, while consumers are buffered by lower taxation and won’t feel the pain of higher imported costs.”
On the main hurdles awaiting Shamsiah:
“A challenging external environment with escalation of US-China trade conflicts and the Fed tightening. Moreover, US tax reforms are making investing in the US more attractive, which will also put pressure on not just portfolio flows but also direct investment globally.”
Irvin Seah, DBS
A strong dollar and Federal Reserve tightening are on Shamsiah’s plate, though her expertise should help the central bank keep a steady policy stance, according to Seah, an economist at DBS Group Holdings Ltd in Singapore.
“Quite likely BNM will maintain a stable monetary policy after the pre-emptive normalization move in January. We are expecting the overnight policy rate to remain at the current level. Given the fact that both the trajectory on inflation and growth are still within the central bank’s expectations, this makes for a stable monetary policy. Essentially Shamsiah’s not new to the industry so in terms of monetary policy, we’re in good hands. Her main challenges are the dollar strengthening, the Fed normalization and the consequential pressure on regional currencies. Another issue would be Malaysia’s external debt.”
Euben Paracuelles and Brian Tan, Nomura
Not much will change under Shamsiah’s steady hand, according to a research note by Paracuelles and Tan at Nomura Singapore Ltd.
“Shamsiah’s appointment implies continuity in the direction and conduct of monetary policy, in our view. Like Muhammad, she had served as deputy governor under former Governor Zeti Akhtar Aziz and was a member of the monetary policy committee. We maintain our forecast of the policy rate being left unchanged through the rest of this year, as we forecast GDP growth slowing to 5.1% in 2018 from 5.9% in 2017, below BNM’s 5.5% to 6.0% forecast. CPI inflation will also likely fall sharply to 1.3% in 2018 from 3.7% in 2019, below BNM’s 2% to 3% forecast.”