This article first appeared in The Edge Financial Daily, on April 28, 2016.

KUALA LUMPUR: The announcement of Datuk Muhammad Ibrahim as governor of the central bank yesterday, which seems to have bolstered the ringgit and stemmed losses in the local equity market, has been hailed as one that is “definitely positive for the country” by outgoing Bank Negara Malaysia (BNM) chief, Tan Sri Dr Zeti Akhtar Aziz.

“Being part of our policy team at the bank will provide continuity and the much needed certainty in this prevailing period of great uncertainty. I have great confidence in his ability to lead the bank going forward into the future,” Zeti said in a statement yesterday evening.

Prime Minister Datuk Seri Najib Razak, in making the announcement of Muhammad’s appointment via a statement yesterday, also expressed gratitude to Zeti for her “outstanding contributions” throughout her 16-year tenure as Bank Negara governor. Zeti will be ending her term on April 30.

The new chief, who will take over from Zeti on May 1 and head the central bank for the next five years, was first appointed BNM deputy governor in June 2010. Prior to joining BNM, he helmed Danamodal Nasional Bhd as its managing director, and the Securities Commission Malaysia as its commissioner.

In a statement, Muhammad, 56, said he looks upon his appointment as an opportunity and call to serve the nation.

“I will strive to carry out the duties of Governor of Bank Negara Malaysia to the best of my ability. I wish to record my appreciation to the Prime Minister and the Government for the confidence and trust placed upon me. It is important for the central bank to maintain monetary and financial stability, remain focused on its strategic agenda and work towards contributing to a better future for all Malaysians.

“I would like to also thank Tan Sri Dr Zeti Akhtar Aziz for her exemplary leadership and enormous contributions to the bank and to the nation.”

After four days of decline, the ringgit strengthened 0.36% to 3.915 against the US dollar at the close of trading hours here yesterday, compared with 3.929 as at 5pm on Tuesday, following the announcement of Muhammad’s appointment.

His appointment, which also drew a slew of positive comments from the banking and finance industry, was also seen to have helped the FBM KLCI stem losses, as it closed only 0.16 of a point lower at 1,692.34 — after falling by as much as 7.17 points earlier, following Tuesday’s 22.01-point drop when 1Malaysia Development Bhd said it had defaulted on its bond interest payment.

Below are excerpts of some comments from leading bankers, economists and analysts:

Datuk Abdul Farid Alias
Group president and chief executive officer of Maybank, and chairman of the Association of Banks Malaysia

Datuk Muhammad’s vast experience, extensive knowledge and leadership record qualify him well for this new challenge and we are confident he will continue the good work of Tan Sri Dr Zeti Akhtar Aziz in leading what can be considered as one of the most respected central banks in the world.

Datuk Muhammad is no stranger to us in the financial services industry and we assure him of our continued cooperation, as well as support for the central bank’s efforts in ensuring  the financial system is further strengthened and the development needs of the country sustained, especially in these complex and challenging times. In this regard, we look forward to continuing working closely with Datuk Muhammad and the team at BNM.

Tengku Datuk Seri Zafrul Aziz
Group chief executive, CIMB Group

We congratulate Datuk Muhammad Ibrahim on his appointment as the new governor of BNM. Having established his career in BNM since 1984, Datuk Muhammad Ibrahim brings into his governor role a myriad of skills and years of valuable experience honed in various roles, including bank regulations and supervision, and strategic planning.

We are confident he will further the good work of his predecessors, while imprinting his own stamp of leadership to keep Malaysia’s financial system strong, stable and progressive.

Sia Ket Ee
Hong Leong Investment Bank Bhd head of research

I would assume that in terms of the policy design for the country, they have worked as a team all this while, that he also shares the same view as to whatever policy that has been advocated by Zeti.

So I think in that sense, I expect Datuk Muhammad to uphold all those values, that eventually the design of the policy still prioritises the stability of the financial sector, and ensure the longer-term sustainability of growth.

Lee Heng Guie
Independent economist

He takes over at a time when the global environment is still complex, with domestic issues like exchange rate stability and financial stability.

Zeti had previously stated the importance of an internal appointment to uphold the integrity and independence of the central bank. So the internal appointment should quell concerns in the market about policy continuity.

You need a central banker, who not just seems to be highly independent, but is able to work with other agencies to coordinate economic policies.

Nomura Group

We believe Muhammad’s appointment is a benign result, in line with our expectations, and will be interpreted as such by the markets. As deputy governor and a member of the monetary policy committee under Governor Zeti, he is the most qualified candidate and will require a shorter transition period than any of the other candidates, in our view. While we will closely watch Mr Muhammad for any statements or comments that reveal his policy biases, we believe he is unlikely to dramatically alter the direction of monetary policy. Overall, we remain comfortable with our view that BNM will keep its policy rate unchanged this year.

For the FX (foreign exchange) markets, the appointment is positive as it suggests policy continuity. That said, the medium-term implications on local markets will become more evident with time, and as such warrant close monitoring of comments from BNM, particularly around policy meetings. Specifically, we are interested in any comments on policy rates and inflation, RM valuation, reserve adequacy and vulnerability. As highlighted by S&P and Moody’s, we believe that BNM possesses institutional strength, which reduces the likelihood of any immediate policy shift.

Julia Goh
United Overseas Bank (Malaysia) economist

An internal appointment was a preferred choice for reasons of policy continuity and stability. We hear that Muhammad was the recommended candidate by BNM’s governance committee to succeed Dr Zeti.

There are high expectations the new governor will bring the same integrity, discipline, independence, prudence and intellectual ability, which are consistent with the central bank’s mandates of ensuring price and financial stability.

Going forward, investors will focus on policy continuity particularly with regard to the calibration of monetary policy and macro prudential measures in the current challenging economic environment. Zeti was unequivocally committed to containing financial imbalances and household debt. Any policy missteps would erode investor confidence.