Thursday 28 Mar 2024
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KUALA LUMPUR (Oct 19): Doubt on the the independence of Bank Negara Malaysia and Governor Tan Sri Dr Zeti Akhtar Aziz amid investigations into state-owned 1Malaysia Development Bhd, has concerned economists.
 
In a statement today, the Malaysian Economic Association (MEA) said such sentiment was likely to create the impression Bank Negara was in danger of losing its powers, or that its governor would no longer be independent, unlike other central bank governors.

“Should such an impression persist and gain traction, it will lead to an erosion of confidence among investors and the international community, with negative consequences on the integrity of our banking and financial system, leading to serious implications for the economy.

"Central bank autonomy does not mean that BNM operates in isolation of the Government and society. Its Governor, whether here or elsewhere, knows that while the law is clear on its independence, the Central Banks's role in conducting monetary policy and enforcing its regulatory functions must be coordinated closely with Government," MEA said in a statement today.

MEA's statement came ahead of Malaysia's Budget 2016 announcement this Friday (Oct 23). Budget 2016 is closely watched, as it will test policy makers' commitment to fiscal discipline, amid the pressing need to spend to deliver economic results.
 
Today, MEA said a budget that created concerns on the capacity of government spending, would cause financial markets to worry about inflation and increasing interest rates.

MEA said these factors highlighted the importance of Bank Negara working closely with the government.

“This is because fiscal policies made in the annual budget have a direct effect on monetary aggregates, inflation and interest rates, and this is the reason why it is common to see governors of central banks briefing their congress or parliament on how they view the economic situation in the country, what they feel about certain government policies on tax or expenditure, and especially on wasteful expenditures.

“No central bank governor will be doing his duty, if he does not raise the red flag early, so as to prevent undesirable economic crises from happening," said MEA.

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