M’sia ready for 2nd round of financial instability

Tags: 2010 Budget | Domestic financial system | Economic recession | Financial instability | fiscal stimulus | Tan Sri Dr Zeti Akhtar Aziz

Written by Yong Yen Nie
Friday, 25 September 2009 12:02

KUALA LUMPUR: Malaysia, which has seen the worst of the economic recession, stands prepared to face the possibility of a second round of financial instability in the developed world, given the country’s sound banking system, said Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

“There could be a second round (of instability) in their financial sector, given the slowdown, but in our case, we don’t have the conditions to begin with.

“Our banks are solid and continue to provide access to financing. All these are supporting domestic demand and businesses,” she said.

Zeti reiterated that unlike countries that were over-leveraged and would need to pare down their indebtedness and repair their financial systems before seeing signs of improved consumption, the domestic financial system had not faced a crisis.

“We believe we have seen the worst. Across the board, there is improvement while domestic demand has seen clear signs of recovery, having benefited from the fiscal stimulus and an accommodative monetary policy, but external factor has to see greater improvement in terms of external demand,” she told the Zeti. Photo by Suhaimi Yusuf
media on the sidelines of the Seacen-BNM Banking and Financial Law School 2009, a continuing education platform to the legal fraternity.

Zeti said the country’s current key interest rates were at appropriate level to support demand and access to financing, and hence going forward, the overnight policy rate would remain at 2% unless there were significant changes.

“We expect external trade to improve in the third quarter and positive growth in the fourth quarter.

“The environment is dynamic and our assessment going forward, is that the economy will continue to improve but at the initial stage, we expect growth to be modest and next year, it will improve significantly,” she said.

Zeti added that the country’s growth forecast would be revised in the 2010 budget, which would be tabled in parliament next month.

Speaking at the event here yesterday, Zeti said one of the challenges that confronted central banks was the increasingly complex financial and economic integration associated in globalisation.

“The recent crisis raised many issues for which clear solutions, or even consensus, have yet to emerge, including on the propensity for home bias in the policy responses, suitable approaches to cross-border resolutions and the significant challenge of coordinating policies across different legal and institutional frameworks,” she said in a keynote address.

Zeti added that given that the legal framework in this area remained highly fragmented, a sustainable solution would require legal framework to provide certainty and clarity in dealing with crises.

“Greater harmonisation and clarity about the triggers for action, the tools to return insured funds quickly to depositors, the authority to implement a quick resolution, and the legal powers to restructure and continue key banking functions would allow for more effective crisis management.

“Hence, it is not just about opening our borders; we need to examine how our domestic regulatory framework interfaces with that of other countries,” she said.


This article appeared in The Edge Financial Daily, September 25, 2009.