Friday 29 Mar 2024
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THE Malaysian economy got off to a good start in 2014, growing at 6.3% in the first half of the year. However, the second half turned out to be more challenging as global growth sputtered and crude oil prices plunged. For consumers, the sharper-than-expected decline in oil prices means cheaper petrol prices. But for the country, a net energy exporter, it throws up all kinds of uncertainty.  - by Adeline Paul Raj

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Datuk Seri Abdul Wahid Omar
Minister in the Prime Minister’s  Department in charge of the Economic Planning Unit

It has been almost 1½ years since Wahid, 50, left the corporate sector to become a senator and minister and he seems to have eased into the roles well despite having to hit the ground running.

His trademark calmness stands in sharp contrast to the turbulence the economy may face next year. These days, the former CEO of Malayan Banking Bhd is often found reassuring alarmists of Malaysia’s economic fundamentals and its ability to adapt to the new environment of lower oil prices and rising interest rates.

Still, with oil continuing its descent at the time of writing, the unease over how well the country will hold up is unabated. Will Malaysia fall into the twin-deficit club, like Indonesia? Will rating agencies cut its sovereign rating? These questions and how Wahid handles potential hiccups in GST implementation are some of the things he will be scrutinised on next year.

The focus will be the 11th Malaysia Plan, the economic development blueprint that will take Malaysia to 2020, the year it targets to become a high-income nation. It will be Wahid’s first blueprint, likely to be unveiled in the middle of next year.

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Tan Sri Dr Zeti Akhtar Aziz
Bank Negara Malaysia Governor

After a prolonged period of low interest rates, Bank Negara Malaysia, in July, raised the benchmark overnight policy rate for the first time since May 2011. The OPR was raised by 25 basis points to 3.25% with Bank Negara saying a “normalisation” of monetary policy was needed to ward off risks of financial and economic imbalances that undermine growth.

All eyes will be on Zeti, recognised as one of the world’s best central bankers by her peers, to see how she reads developments next year and translates these into monetary policy.

Expectations are that the OPR will be increased by at least another 25bps in the second half of 2015, as the introduction of GST potentially bumps up inflation.

The depreciating ringgit, hurt by falling oil prices and a strengthening US dollar, is turning out to be a challenge. Already, the central bank is said to be intervening in the market to keep the ringgit stable at around 3.5 to the US dollar.

Another worry is that foreign investors may continue to dispose of Malaysian government securities and how this will affect the financial markets.

The question is, how far will the ringgit slide in 2015 and what are the policy options open to Zeti? If she raises interest rates to make ringgit assets more attractive, it could hurt already-slowing growth. If she leaves rates unchanged and inflation creeps up, consumer spending will slow down. Growth will also be impacted. Zeti’s skills as a central banker will be sorely tested in 2015.

 

This article first appeared in The Edge Malaysia Weekly, on December 29, 2014 - January 04, 2015.

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