KUALA LUMPUR: Bank Negara Malaysia (BNM) adopts a holistic approach to its monetary policy, taking into account current and future macro dynamics, BNM governor Tan Sri Dr Zeti Akhtar Aziz said.

Zeti, who was commenting on the impact of Japan’s recession on Malaysia’s monetary policy, said the central bank takes into account many factors, including the policies of major economies.

“Monetary policy is a forward-looking policy, so, we will look at not only current conditions but also future conditions.

“Therefore, we have to make further assessment of the temporary factors which led to the slowdown in Japan’s growth or any other major country,” Zeti told reporters after delivering her keynote address at the ISI Regional Statistics Conference 2014 yesterday.

“We have to also look at their policy flexibility — whether they have the capability to adjust policy measures. For example, if you look at China, they have a fiscal surplus and therefore they will be in a position to provide support if the economy slows down by more than anticipated.

“So, you have to look at all these policies and conditions to see what the future prospects will be,” Zeti said.

Reuters reported that Japan’s economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call for a snap election two years before he has to go to the polls.

Japan’s gross domestic product shrank by an annualised 1.6% in July to September, after plunging 7.3% in the second quarter following a rise in the national sales tax, which clobbered consumer spending. BNM maintained the overnight policy rate (OPR) at 3.25% at its latest monetary policy committee meeting on Nov 6.

Yesterday, Zeti said the economic policies of major importing nations such as China also influenced Malaysia’s interest rate policy.

Zeti is optimistic about Malaysian exports as there has been export diversification in terms of geographical markets and products.

She said 60% of Malaysian exports go to the Asian region, which is still a growth centre led by domestic demand.

“All of us are no longer export-led economies. Our growth is driven by domestic demand,” Zeti said.

This article first appeared in The Edge Financial Daily, on November 19, 2014.