Posted on 28 Feb 2012
Despite the gloomy projections, Bank Negara is confident that the economy will notch a decent 5% growth this year.
“We can say with a high degree of confidence that domestic demand is on a solid and steady growth,'' said governor Tan Sri Dr Zeti Akhtar Aziz in an interview over BFM radio yesterday, pointing out that consumption demand and private investment activity were growing in excess of 6%.
In fact, domestic demand has been the main driver of growth for the past two to three years.
No doubt, the country's exports will be affected by the slowing demand in the United States, Europe and other parts of the world.
“Ten years ago, such a development would have slowed our growth to 2%-3% but we have focused on developing our domestic economy and demand. Therefore, we have the opportunity to be more resilient,'' she said, adding that there could be a period of prolonged slow growth in many of the advanced economies.
File pic of Tan Sri Dr Zeti Akhtar Aziz
“This may lead to slightly slower growth than what we have seen but to a large extent, it can be partially offset by domestic demand,'' she said.
On household debt at 78% of gross domestic product (GDP), Zeti said: “Household debt increases with rising income; these loans have contributed to our economy.
“The important aspect is that loans turning bad is very low; it is on a declining trend, currently at 1.9% compared with 2.5% last year. We are not concerned but we don't want to wait until it becomes a problem. A wide-ranging set of policies have been implemented across the board, starting with the normalisation of interest rates.
“We raised it gradually from 2% to 3% in 2010, not as a tightening but normalisation to prevent a build-up of financial imbalances. When interest rates are too low for too long, it results in mispricing of risks and formation of asset bubbles. People take the view that interest rates are going to be low for a long time, and they may go into businesses that are less viable,” she said.
“Therefore, the moment the risk of recession was not there, we took the opportunity to also raise the statutory reserve requirement from 1% to 4% to manage excess liquidity; we also implemented macro prudential measures like the loan-to-value ratio. This was reinforced with the recent capital gains tax,'' she added.
On complaints of falling car sales as a result of the stricter approval guidelines, Zeti pointed out that with one of the highest car ownerships in the world, the local car market was already saturated.
“We have no objection if a borrower can afford to take a loan. It is important for carmakers to recognise that there are limitations in the domestic market; they have to intensify their competitiveness and explore other markets.
“An important mandate for the central bank is to safeguard financial stability and protect the shareholders and depositors' interests,'' she said.
Bank Negara exercises its supervisory oversight on all segments. “There may be one or two banks that engage in this kind of excessive business; it is not only their management but also their board that will be queried.
“If it is excessive and shows imprudent behaviour, we will take action on the bank, which will have to come up with a plan or letter of undertaking on how they are going to address this (excessiveness),'' Zeti said.
On fairly high levels of borrowing by civil servants, she said: “Some of them, especially the middle to lower-income group, may be borrowing through cooperatives.
“We have engaged with the Malaysian Cooperative Commission and highlighted to them that people should be allowed to borrow if they have the means,'' she said, cautioning against borrowing activities that were conducted under the less-regulated part of the financial system.
Called “shadow banking”, this type of financial activity has been named as one of the culprits that caused the recent global financial crisis.
“That hasn't happened yet in our country but again, we do not want it to happen and then rush in with more stringent rules.
“Now, it is a gradual process. When we recognise a trend, we highlight it to the various regulators, the Government and chief secretary that they might heighten their surveillance on this kind of borrowing that can become excessive,'' she said.
Given the difficult external environment, interest rates will be kept at an accommodative level. “We don't consider inflation a major risk. In fact, it shows a positive trend with a decline of 0.3% for January (2.7% compared with 3% in December) and real rates have turned positive,'' she said, adding that there was no imported inflation at this point.
On the internationalisation of the ringgit, Zeti said: “We want to see our forex market to be more well-developed. We don't want a situation when we internationalise the currency and the forex market migrates to other countries. This will increase our vulnerability as what we have seen during the 1997 Asian financial crisis.
“We want to put in place a surveillance mechanism to understand the inflows and outflows. When there are surges of inflows or massive reversals, we will be able to take it in our stride,'' she said, adding that timing on this kind of policy could not be revealed, especially in unstable times.
On the importance of reinventing oneself, Zeti said she had reinvented herself in many ways in terms of managing a crisis, people and relationships as well as communications.
“A leader must have knowledge of the business, sense of purpose and ability to articulate the vision that he or she wants to achieve. Respect is important for any leader,'' she said. “I live in a world that is dominated by men but there's never been any disrespect because of gender. I think it's important for women to demonstrate their capability.''
“Time management (in balancing between career and family) becomes important. Personally, it is being there when you are needed. I am also there for my parents from time to time. I try very hard to be with my children when they need me.
“There are also special times when we bond together; my husband may feel he's the third of the list but I always say that I am the last of the list the time I have for myself is the least,'' she said.
How does she destress? “I spend time with the family ... go out for dinner. I have three cats and I watch films.”
Zeti is strong in her mathematics. “My father (Royal Professor Ungku A. Aziz) felt it was important to learn mathematics. I studied pure mathematics in university,'' she said, adding that he also encouraged her to excel in anything she did. “That contributed to how I turned out but I have never aspired for position.”
