BNM cautions that Malaysia not out of the woods despite transition to endemic phase

BNM cautions that Malaysia not out of the woods despite transition to endemic phase
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KUALA LUMPUR (March 30): While the nation is transitioning towards endemicity, the Bank Negara Malaysia (BNM) governor cautioned that the country may not be out of the woods even if it successfully comes out of the Covid-19 pandemic.

In her foreword for the central bank’s Annual Report 2021, Tan Sri Nor Shamsiah Mohd Yunus pointed to the recent spate of floods in the country to the outbreak of geopolitical conflicts abroad, which she said had emphasised how quickly the operating environment can change.

“It is important that Malaysia’s economy not only recovers, but does so in a strong and sustainable way.

“Being in a continued state of preparedness is thus one of our top priorities in the year ahead. We are committed to ensuring the bank’s policies and tools are ready to respond swiftly and effectively to downside risks that could derail Malaysia’s economic recovery,” she said.

Nor Shamsiah added that managing potential inflationary pressures and ensuring orderly financial market conditions is a key focus as policy settings are adjusted from unprecedented levels of monetary accommodation.

From digital banks to digital insurers and takaful operators

While she reviewed how the bank's focus in the past year was to support Malaysia's transition through and out of the crisis brought on by the pandemic, she also pointed out that it had continued to strengthen the country's foundations for the future.

"The silver lining of any crisis, after all, is the window of opportunity for reform and renewal," she said as she cited as an example the bank's launch of the Financial Sector Blueprint 2022-2026 earlier this year that outlined its vision for the next five years and how to achieve it, and the bank's review of its monetary policy framework to ensure its effectiveness.

She assured that BNM’s public policy objectives will have a clear and common focus, which will continue to take a longer-term view — beyond immediate issues and challenges — to strengthen and preserve strong foundations for Malaysia’s economic prosperity and sustainability.

Some of the bank's longer-term reform efforts are already under way, she said, with major inroads made in the past year, with one key area being digital financial services.

"We have worked to ensure that our regulatory framework remains fit-for-purpose for new business models and technologies. We look forward to the expected positive impact of the entry of digital banks in Malaysia.

"We will also pave the way in the coming year for digital insurers and takaful operators to follow suit. This will further enhance access, quality, efficiency and customisability of financial services, focusing in particular on underserved market segments," she said.

She also touched on the bank's initiative to learn about central bank digital currencies with other central banks, while remaining vigilant over broader developments in the space of digital assets.

"This ensures that we remain ready and responsive to formulate policy responses, where appropriate — be it to capitalise on the opportunities or to protect against the risks," she said.

Pressing ahead towards climate resilience of financial sector

Meanwhile, key building blocks are now being put in place, the governor said, to support the effective management of climate-related risks and encourage financial flows to climate-aligned activities.

"In the coming years, we will press ahead to further strengthen the foundations for greater climate resilience in the financial sector, while enabling the financial sector to support an orderly transition to a greener economy. As we do so, a key focus will be to look at climate change issues in tandem with broader nature-related risks, such as those related to biodiversity loss," she added.

Read more stories from the BNM Annual Report 2021 here.

Tan Choe Choe