Malaysia's Monetary Policy Continues To Focus On Price Stability, Sustainable Growth

KUALA LUMPUR, Oct 21 (Bernama) -- Malaysia's monetary policy will continue to focus on price stability and sustainable growth, given the risks in the global economy. The Ministry of Finance said that despite uncertainties in the international financial markets, Malaysia would continue to strengthen the key financial fundamentals to drive the development of the domestic financial sector and steer economic growth. It said further liberalisation of the financial sector underlined in the Financial Sector Blueprint 2011-2020 will provide more flexibility in the banking system and the capital market to facilitate financing by the private sector. "Further strengthening of the sector will focus on more innovative products, both for the conventional and Islamic finance, to allow greater ease of doing business in Malaysia for domestic and foreign investors," it said in the Economic Report 2016/17 released in conjunction with the 2017 Budget announced by Prime Minister Najib Razak here Friday. Despite heightening external uncertainties, monetary conditions remain accommodative and supportive of economic activity with resilient financial system and sufficient liquidity. "The expectation of interest rate increase by the US Federal Reserve and China's economic slowdown has raised investors' concern on the stability of the domestic financial system," it said. However, the well-capitalised banking system and deep capital market will continue to integrate with regional and international financial markets, thus providing ample liquidity and efficient financial intermediation to meet the needs of the economy. Over the years, the government has taken several initiatives to strengthen the banking system, as well as the domestic capital market in line with the monetary policy stance to achieve price stability and sustainable growth. To ensure that the domestic financial system is fully integrated with the global financial market, Bank Negara Malaysia (Malaysia's Central Bank) established the Financial Markets Committee in May 2016 to broaden industry engagement with a focus in reviewing and formulating comprehensive strategies for the financial markets. Malaysia's deep and diversified capital market has been able to accommodate the shifts in global liquidity and withstand bouts of volatility. In 2015, the bond market was the third largest market in Asia, after Japan and South Korea with a size of US$286.94 billion (RM1.2 trillion), equivalent to 97 per cent of Gross Domestic Product. Malaysia led in the issuance of sukuk, accounting for 53.4 per cent or US$180 billion of the global sukuk outstanding as at end-June 2016. The success of the government’s fifth US$D-denominated global sukuk issuance in April 2016, proved investors’ continued confidence in Malaysia's economic stability. On monetary developments, the report said interest rates in the banking system was revised downward following the Overnight Policy Rate adjustment in July 2016. The ringgit advanced against most major and regional currencies during the period of January to July 2016, including a 5.9 per cent increase against the US dollar, the pound sterling (18.9 per cent), the euro (4.4 per cent) and the Australian dollar (2.6 per cent) but depreciated nine per cent against the yen. --BERNAMA