Institutions Can Help Malaysia Cushion Fed Tapering, Zeti Says

Zeti Akhtar Aziz, Malaysia’s central bank governor, comments on U.S. Fed tapering, Malaysian inflation and monetary policy. She made these remarks to reporters at a book launch in Kuala Lumpur.

On tapering:

“We have to take the tapering as an eventuality. It is a sign that the U.S. economy is recovering and therefore this is a positive for the rest of the world. As a recipient of the tapering we will see more volatility in our financial markets as a result of the volatility of the capital flows.

‘‘At first we would receive surges of inflows and when these tapering occurs there will be some reversals, but we are well-positioned to manage and intermediate these kind of volatile flows. We have significant institutional investors within our financial system, like the pension funds, the insurance industry. All these institutional investors will be important to contribute to stabilizing our markets.

‘‘In our foreign exchange market, we also see two-way flows as a result of our progressive liberalization that we have taken. This also contributes to stabilizing our markets. Bank Negara is also there to ensure orderly market conditions.’’

On impact of Malaysian state subsidy cuts on inflation and monetary policy:

‘‘We will look at to what extent it causes rise in prices. If it is just the first round effect as a result of this adjustment in cost, then we will review the situation. But if it is due to demand pressures, then that would be a reason to reassess the current interest rate.

‘‘We also have to look at what the risk to growth is. Bank Negara is a central bank that looks at both the risk to inflation and the risk to growth. Therefore, we will take into account all these factors before deciding. It is a preemptive policy, anticipatory of what is going to happen in the future. Each time we have a monetary policy committee meeting, we will make the assessment of what the balance of risks are.’’

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