Malaysian economy to grow 4-4.5% this year

Posted on 24 March 2016

Source: The Sun Daily
Malaysia is on track to achieving a 4.0% to 4.5% economic growth for 2016, driven by domestic demand that comes primarily from the private sector.

Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz said all economic sectors, except for agriculture, are expected to expand, with the services and manufacturing sectors remaining the key drivers of overall growth.

“We’ve strengthened our financial system and developed bond market. Because of that, we’re able to stay within 4% to 5% growth. If we haven’t done that, then we potentially could have a significant slower growth of 1% to 2%,” she explained.

Inflation is projected to be lower and more stable at 2.5-3.5% this year, she added.

While global oil prices have rebounded lately, Zeti is of the view that it won’t pose an inflationary impact on the back of a continued oversupply glut.

“Even if oil prices do rise to US$60 per barrel, we anticipate it won’t exceed that level in two to three years because of structural conditions prevailing, that there will be excess supply in the next two years, at least. So it won’t result in inflationary pressure, particularly in an environment of low growth,” she said.

Meanwhile, Zeti said the 3.25% Overnight Policy Rate is at “appropriate level” at the moment.

“We balance the risk to growth and inflation in making monetary policy decision ... we can make adjustment should the balance of risk changes.”

On the currency front, Zeti said the ringgit will eventually reflect the underlying economic fundamentals, such as the current account surplus, continued foreign direct investment and low level of foreign currency-denominated external debt.

“Apart from that, domestic fundamentals also continue to grow – low inflation, sound financial system will reinforce the factors, these eventually what the currency should be reflecting,” she added.

The ringgit appreciated 0.42% to 3.9930 against the greenback as at 5pm yesterday.

However, Zeti cautioned that the ringgit will remain volatile amid uncertainties in global developments.

“That’s why we liberalise many exchange rate administration rules, so that businesses and households can better manage their foreign exchange exposure,” she said.

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