KUALA LUMPUR (April 3): The domestic lending market remains supportive of economic activities, despite the country’s high household indebtedness and the rising interest rate environment, said Bank Negara Malaysia (BNM) assistant governor Fraziali Ismail.
“Some have argued that given the high debt, is it the case that monetary policy is being constrained by financial stability concerns? Let me be very clear, that is not the case for Malaysia,” he told an audience in a panel discussion organised by the Malaysian Economic Association at the Asia School of Business.
“Yes, there is high household indebtedness, but it hasn’t come to a point where, what we do in monetary policy, needs to be highly qualified by what is happening on the financial stability side,” he added.
Fraziali also said that despite the hikes in the overnight policy rate (OPR) last year, there are still healthy demand and supply of credit.
“What we have seen is that monetary policy transmission has been playing according to the script. The 100 basis points (bps) that we raised [in the OPR] have been fully transmitted to the lending and deposit rates, likewise to the market.
“What we are seeing going forward is that banks will continue to lend. There are healthy demand and supply of credit. There is continued willingness to spend on the part of the bank, and to the extent that the economy continues to improve, we ought to see growth in credit to support the economy,” he said.
The central bank raised its benchmark interest rate by 100 bps last year, before maintaining the rate at 2.75% in the last two monetary policy meetings.
Fraziali reiterated BNM’s view that the pause was meant for the central bank to reassess the ongoing economic environment before proceeding further to normalising interest rates.
“We paused for a number of reasons. We want to take stock in terms of how our moves have affected the economy. It has affected the financial market relatively well, but how does it affect consumption and investment decisions?
“The pause allows us to reassess the transmission mechanism, the impact on the economy, and at the same time for us to take new information about how the world is evolving going forward,” said Fraziali, who is also a member of the Monetary Policy Committee of BNM.
Fraziali stressed that while the OPR is normalising, it is still accommodative, as the current rate of 2.75% is still lower than the pre-pandemic level of 3%.
“There is a little more room, such that the OPR stays accommodative. When do we cross to the other side for rates to be neutral or restrictive? It is when we have a situation where the economy is going a little bit too fast, where it needs cooling.
“Now, the economy requires a helping hand, which is why monetary policy is still accommodative,” he said.
Fraziali said there are still certain sectors that had yet to recover from the Covid-19 pandemic, and they account for about 20% of the country's economy.
“I am very aware that we are planted as heartless central bankers who don’t care about people, especially for the 20% that I mentioned, but they will be helped the most if inflation is contained. And [for] the bottom 20% [household income group], their loans are mostly [at] fixed rates, so they are not affected,” he said.