Aug. 21 (Bloomberg) -- Zeti Akhtar Aziz, Malaysia’s central bank governor comments on risk of currency contagion and the country’s narrowing current account surplus. She made these remarks to reporters in Kuala Lumpur after announcing the second-quarter economic growth.
On the risk of currency contagion:
“We are seeing highly destabilizing capital flows and this is within our expectation because we earlier saw surges of inflow in our financial system. We received something like 70 billion ringgit in inflows in search of higher returns.
“Now as there are discussions on potential for quantitative easing, some of these funds will return back to their respective economies. Therefore we expect that there will be reversals. This is not the first time we see this phenomenon. Previously, during the height of financial crisis, we also saw 2008 and 2009 surges of capital flows. We saw de-leveraging taking place that precipitated depreciation in our currency and the significant slide in our reserves.
“We demonstrated during that time our financial system was able to cope with this and therefore we will able to do the same in the current environment.
“We have strong intermediaries and one of biggest bond markets in Asia. We also have strong institutional investors who can absorb any selling of Malaysian government securities. Our reserves level is at its strongest ever and we have a low level of external indebtedness.”
On the ringgit:
“We have seen a depreciation of 6.9 percent. It’s very important to highlight we have seen this before. That is why we have always said it’s important to build buffers to have flexibility and agility so that the financial institutions can withstand such volatile conditions.”
On the shrinking current account surplus:
“The surplus has narrowed but it’s still a surplus and the recovery in external demand will improve this.”
To contact the reporter on this story: Elffie Chew in Kuala Lumpur at Echew16@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang in Singapore at