Malaysia’s Zeti comments on growth, inflation, monetary policy

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(Oct 13): Zeti Akhtar Aziz, Malaysia’s central bank governor, comments on monetary policy, growth and inflation in an interview in Washington on Oct. 11.

Bank Negara Malaysia will release its next interest-rate decision on Nov. 6. It left its benchmark rate at 3.25 percent last month after raising it by 25 basis points in July.

On growth outlook:

“We’ve seen the risk for growth actually increase because of the uncertainty now with respect to policy directions of the major economies in the developed world. And so this has caused some increase in volatility and there’s uncertainty in also the growth outlook. Although, especially in the U.S., there has been several encouraging signs that the pace of the growth is gaining momentum. However, there are other parts of the world that there’s increased uncertainty.

‘‘Geopolitical tensions have also increased, and it is uncertain what implications it will have for global growth.”

Malaysia “remains on a positive, steady growth trajectory.

‘‘Most of our growth is driven by domestic sources of growth, investment has been growing very strongly at double- digit rates.

‘‘And so while we have some moderation in consumption, it will probably bring us closer to the 5 percent growth, but for this year, it’ll be closer to the 6 percent growth because we had strong growth in the first half of the year.’’

On inflation:

The cut in subsidies ‘‘will have some impact on prices. However our assessment is that in terms of the timing of these measures, it will result in a temporary increase in prices in the second half of this year because the subsidy rationalization takes place now. Our projection, however, of inflation of 3 to 4 percent for this year does not change. It’ll probably be closer to the higher end of the range of the forecast.

The goods and services tax ‘‘will also cause a temporary increase. So inflation will be above the average long-term trend, which is 3 percent.

‘‘Going into 2015, it could range between 4 to 5 percent. And by 2016, we see it trending back to the long-term average of 3 percent. So in that sense we’re not concerned, because the timing of this introduction of these measures will be at a point when there’s some moderation in aggregate demand and also the external position will moderate somewhat.’’

On second-round effects:

‘‘Right now, our assessment is that inflationary expectations are well-anchored.

‘‘The trend that we need to monitor is the potential second-round effects, and right now our assessment is that these second-round effects would be weak. But that assessment will be continued to be made at every monetary policy meeting, and that will determine our interest-rate policy. But we also need to look at the risk to growth. So both have increased. The risk to growth has increased, and the risk to inflation has increased, so we have to monitor it carefully.’’

On bias between supporting growth or containing inflation:

‘‘I would like to put it in very clear terms that right now, the monetary policy stance is to be accommodative, that means to support growth. And going forward, we believe that monetary policy -- like the adjustment that we made on monetary policy -- is just an adjustment on the degree of monetary accommodation, and it still remains accommodative. And going forward, we believe that given the global outlook for growth and so on, that monetary policy will still need to remain accommodative.’’

On factors to consider before raising rates again:

‘‘We have to weigh it as we venture forward, and to look at all the risks. And in our case, we also look at the sources of the inflationary pressure, we don’t just look at the inflation.

‘‘We make an assessment whether this is going to be a permanent trend or whether it’s temporary. And right now our assessment is that the rise in price will be temporary because of the conditions prevailing.