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Central bank chief sees slower M’sian growth amid moderate global outlook

WASHINGTON — Malaysia’s economy may expand less than previously expected this year, in part because of slower external demand as the rest of the world grows at a pace that is only moderate, central bank governor Zeti Akhtar Aziz said, where she was attending the International Monetary Fund’s (IMF) meetings.

WASHINGTON — Malaysia’s economy may expand less than previously expected this year, in part because of slower external demand as the rest of the world grows at a pace that is only moderate, central bank governor Zeti Akhtar Aziz said, where she was attending the International Monetary Fund’s (IMF) meetings.

“There’s no strong momentum” in global economic growth, Ms Zeti said on Saturday in Washington in an interview that touched on global monetary policy and the ringgit. Malaysia’s current interest rates are accommodative and conditions now allow the nation to maintain borrowing costs “at these levels”, she added.

While global recovery “is so modest that it’s not going to fuel inflation”, Ms Zeti said a lack of price pressures should not prevent central banks from raising interest rates to prevent imbalances from forming.

The United States Federal Reserve, which is gearing up to boost its main rate for the first time since 2006, should act sooner rather than later, she added. “The earlier it happens, the better it would be,” she said, adding that Malaysia is prepared for capital outflows resulting from the impending policy change. “The volatility is the uncertainty of it.”

Ms Zeti said reversals “have commenced” in the run-up to the rate increase, which may come as early as June. She added that Asia would also be resilient in the face of volatility that comes from the Fed policy change. “Because we’re open, we’re affected, but we bounce back quite quickly.”

Malaysia said in January growth would be 4.5 to 5.5 per cent this year, down from an earlier projection of as much as 6 per cent. Ms Zeti said the midpoint could be “slightly lower” at about 4.8 per cent. That would still mark “very good growth”, she added.

Risks depressing the outlook include a pull-back in domestic consumption after the government implemented a 6 per cent consumption tax, which started this month.

Lower oil prices are also playing a role in the slowdown, said Ms Zeti. Malaysia derives about 30 per cent of its revenue from oil-related sources.

“Where rates are is now accommodative. It is a rate that is supporting the growth process and we believe it is important now, where inflation is between 2 and 3 per cent, that the risk to higher inflation is not there,” she said.

The fall in commodity prices is also affecting the ringgit. It has lost 9.7 per cent in the past six months, among the worst performers in Asia, and reached a six- year low of 3.7350 against the US dollar on March 20, data showed.

Ms Zeti reiterated that the currency is undervalued and does not reflect underlying fundamentals in the economy. BLOOMBERG

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