Thursday, November 1, 2007

Malaysia’s economy resilient despite pressures

TheStar

KUALA LUMPUR: Bank Negara is confident that Malaysia’s economy will remain resilient despite external pressures.

“Malaysia’s strong and robust economy will put it on good stead to mitigate the fallout from escalating crude palm oil prices and unstable world financial markets,” Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said yesterday.

However, she said, it would take time to gauge the impact of these external pressures on the domestic economy.

“It will take a few months to see whether all these will have implications on our export sector,” she told reporters after opening the sixth International Association of Deposit Insurers (IADI) Annual Conference yesterday.

The two-day conference, which began yesterday, is organised by the Malaysia Deposit Insurance Corp.

Zeti said the robust domestic economy was fuelled by strong growth in consumption expenditure and investment activity.

“Foreign direct investments into our country have remained strong. So all these domestic activities will mitigate the impact of external developments,” she said.

Asked to comment if inflation was a major concern to Bank Negara due to rising commodity prices, Zeti said: “Right now we will monitor the situation. But we would like to emphasise that we are starting at low levels of inflation that is at less than 2%.”

She added that it (level of inflation) was one of the lowest in the region.

“Of course, as prices adjust, it would affect our overall inflation. But, currently, we are operating below full capacity utilisation and investment is increasing quite significantly, so there is expansion.

“As a result, we are not seeing a demand-induced pressure. These price adjustments are a result of rising costs and this is what we will monitor,” she said.

Zeti also said Bank Negara would continue to maintain its vigilance on energy prices.
“We will continue to monitor closely what happens to energy prices, whether they remain elevated over the next three months or reduced,” she said.

She added that uncertainties that had emerged in the global economy and financial developments had to be taken into consideration in assessing the implications on the level of inflation in the country.

Earlier, in her keynote address at the sixth IADI annual conference, Zeti said sound risk management by banking institutions, which was reinforced by prudential regulation and supervision, would remain the first line of defence against a financial crisis.

However, she stressed that primary responsibility for sound institutional risk management would rest with the boards and senior management of banks.

“It is the boards, and not supervisors, that are principally responsible for the performance of banks and their financial strength.

“Boards set the tone for their institutions’ risk-taking activities, and provide effective oversight to ensure that their decisions are followed.

“Of paramount importance is the need for boards to ensure that risks are estimated in a consistent and timely manner,” she said.

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