KUALA LUMPUR: Bank Negara Malaysia has more flexibility in shaping its policy now with a growth-entrenched economy supported by inflation rate within an expected range, its governor Tan Sri Muhammad Ibrahim said.
“It is important that any point of time, the interest rate should remain at a level to promote growth and, at the same time, (ensure) inflation is managed,” he said on the sidelines of the Global Symposium on Development Financial Institutions yesterday.
The Overnight Policy Rate (OPR) was maintained at 3.00 per cent at the latest meeting.
Bank Negara is optimistic about this year's economic outlook following the 5.8 per cent gross domestic product growth in the second quarter that was driven by firmer domestic activity and exports.
Headline inflation had continued its moderating trend, declining to 3.2 per cent in July, mainly due to the decline in domestic fuel prices.
The central bank’s next and final monetary policy statement for the year will be on November 9.
The inflation numbers are within Bank Negara’s projection, he said, adding that it will depend on global oil prices.
On the position of the ringgit, Muhammad reiterated that it should reflect the economic strength of Malaysia.
“If growth and inflation rate are under control then it should reflect that fact….that is important. The exchange rate should reflect the fundamentals.”
He reminded corporates not to rely on the foreign exchange rate but instead on raising the productivity and rolling out innovative products, to boost their competitiveness.
To a question on the central bank’s stand on crypto currency which has attracted the attention of global central banks, he said: “We hope to come with the guidelines, especially with regards to money laundering and terrorist financing, before the end of the year.”
Muhammad said DFIs here have made tremendous contribution towards the development of the economy.
Citing an example, he said Bank Simpanan Nasional’s agent banking framework has 7,000 agents nationwide which also meant that the rural community have access to financing.
Bi-yearly, the central bank on its part also conducts stress tests on DFIs as well as other banks to ensure that the risk involved commensurate with the capital they have.
Among the traits DFIs need to promote and champion the new growth areas are mandates to develop niche segments.
Affiliations with the government, ministries and agencies will enable them to take higher risks while a broader focus on socio-developmental goals allows risk-return trade-offs to take into account positive externalities for the economy.
“We expect our development financial institutions to operate with the highest level of professionalism and integrity at all levels of the organisation. “
There are many instances where development financial institutions can play a catalytic role in economic development, he added.
They can open new frontiers in discovery and exploration; accelerate poverty eradication and mitigate global climate change.