Zeti: Current interest rates conducive for gradual recovery

KUALA LUPUR : Existing interest rates in Malaysia are deemed conducive to support the gradual recovery of the nation' economy, Bank Negara Malaysia (BNM) Governor Tan Sri Dr Zeti Akhtar Aziz said.

This is because current lending rates are deemed appropriate to support lending growth to spur the nation's domestic demand. Zeti said the key hindrance to encourage borrowings was the demand factor within the local and external landscape.

"Interest rates are at the appropriate level supporting the recovery that is taking place," Zeti said at the sidelines of the Asia-Europe Meeting here on Monday, Oct 19.

Bank Negara had slashed the overnight policy rate (OPR) by a combined 150 basis points since November last year, but has maintained it at 2% at its four previous Monetary Policy Committee meetings in April, May July, and August this year.

At the current OPR of 2%, economists believe that Malaysian interest rates could have hit bottom and a potential hike can be expected after the second half of next year.

In fact, the recent move by Autralia to hike rates had fuelled speculation that Malaysia may undertake a similar move sooon.

Economists said the surprise move by Australian lawmakers could result in similar initiatives among other commodity-based economies such as New Zealand and Canada.

However, n Malaysia, while commodities like palm oil, and oil and gas, constitute a crucial component of the nation’s economy, Azrul said the country should not be regarded as a commodity-based entity.

For now, the general view is that the country will likely register its first gross domestic product (GDP) contraction this year since the 1997/1998 Asian financial crisis.

This is in anticipation that GDP in the second and third quarters of 2009 will continue to shrink against the backdrop of a still-weak global platform.

Malaysian policymakers have initiated two economic stimulus packages with a combined value of RM67 billion to boost domestic demand against a landscape of falling exports.

On a larger scale, Zeti said several factors would support early recovery in Asia. These include strong fundamentals, pro-growth policies and structural factors

"Going forward into the future, the global shifts taking place calls for a new economic model, one that would leverage on regional strengths, address the current and future risks and recognise the new global opportunties," she said.