Any adjustment to policy a normalisation

KUALA LUMPUR: Malaysia has the flexibility to adjust the degree of its monetary policy accommodativeness, which it stressed will be a “normalisation” of interest rates, said Bank Negara Malaysia (BNM) governor Tan Sri Muhammad Ibrahim.
“We’ve hinted that once the growth of economy is entrenched, economic expectation is positive, inflation is what we’ve expected and financial imbalances have not increased significantly or becoming a problem, it will give us a bit of flexibility to adjust the degree of monetary policy accommodativeness. It’s not a tightening but a normalisation of interest rates,” Muhammad said after announcing the country’s Q3 GDP last Friday.
He said real interest rates have been negative for almost a year, which is not something abnormal. Moreover, he said the economy has gone through longer periods of negative real interest rates, such as in 2009, where negative real interest rates were present for over one-and-a-half-year.
Despite the different scenario now with the elevated household debt being a recent phenomena, Muhammad said there are still certain things that we can link with.
“For example, if there is a negative interest rate, there will be some financial imbalances and if it’s too long, if we have an opportunity to correct that imbalance, we should take it. At this moment, we have that flexibility,” explained Muhammad.
Standard Chartered Bank head of Asean Economic Research Edward Lee said with the latest Monetary Policy Committee statement clearly highlighting the central bank’s hawkish stance, it sees the overnight policy rate being hiked by 25bps in January 2018.
“But this is not the start of a tightening cycle. If anything, the risk is for no hike rather than more hikes,” Lee told SunBiz.
OCBC Bank economist Barnabas Gan said BNM’s persistent rhetoric in indicating it wants to adjust monetary policy suggests that the central bank is gearing up market expectation for an eventual rate hike in its upcoming meetings, and look for BNM to deliver at least a one-time rate hike into 2018 then. – by Ee Ann Nee