Friday, October 19, 2012

Malaysia Can Manage Capital Inflows

The Malaysian economy is withstanding the impact of weakening global growth, with gross domestic product forecast to expand about five per cent this year, Zeti said in an interview here on Sunday. 

MALAYSIA can manage capital inflows due to monetary easing in advanced economies, central bank governor Tan Sri Dr Zeti Akhtar Aziz said, as Asian countries take steps to prevent asset bubbles after the US boosted stimulus.

The country has policy tools and the flexibility to absorb any excess liquidity, said Zeti, who oversaw Malaysia's response to capital outflows during the Asian financial crisis more than a decade ago.

"We certainly are the recipient of capital flows but the Malaysian financial system has reached a level of maturity in terms of development and in its functioning that is able to intermediate these flows, both surges of inflows as well as reversals," Zeti said. "The effects are disbursed through the financial system rather than concentrated."

Malaysia joins Brazil among emerging markets signalling confidence they can counter any surge in fund flows stemming from the US Federal Reserve's third round of quantitative easing. Fed chairman Ben S. Bernanke three days ago rebutted concern that the central bank's decision to purchase US$40 billion (RM122 billion) in mortgage-backed bonds a month will cause a destabilizing influx of capital into developing economies.

Brazil's central bank president Alexandre Tombini said on Monday his country will defend itself from short-term capital flows that bring financial instability and inflation risks amid an easing push from major economies. "We have the conditions to protect ourselves and we are doing that," he said.

Indian Finance Minister Palaniappan Chidambaram told US Treasury Secretary Timothy F. Geithner the Fed's easing may push commodity prices higher. Brazilian Finance Minister Guido Mantega said this month that QE3 risks aggravating currency problems for emerging markets, and vowed to do whatever is necessary to stop the "selfish" monetary policies of some developed nations from hurting his country's economy.

Japanese Prime Minister Yoshihiko Noda said last week his government will act against disorderly gains in the yen.

Most Asian currencies have gained in the past three months, and Hong Kong and Singapore unveiled measures to cool property prices after the US stimulus. Malaysia's ringgit has climbed about four percent since mid-July, the most among 11 Asian currencies tracked by Bloomberg after the Indian rupee.

The Malaysian central bank has kept interest rates steady for eight meetings, most recently in September, as the lowest inflation rate among Southeast Asia's major economies reduced the need to tighten policy. Consumer prices rose 1.4 per cent in August from a year earlier, staying at the lowest rate in more than two years.

"Right now on the horizon, the risk to inflation doesn't appear to be imminent," Zeti said. "There is less of a risk of inflation and given that we have excess capacity in our economy, the risk is on growth. But again right now, domestic demand is still relatively strong."

The country's monetary and fiscal policy is already "quite accommodative," Zeti said. Bloomberg 

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