Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/20130615004729/Article/index_html
Published: Jun 16, 2013
Governor Tan Sri Dr Zeti Akhtar Aziz said besides a strong build-up in the central bank’s reserves to more than US$140 billion (RM438 billion), the steady flow of foreign direct investments (FDIs) should support the country’s external position.
“At this point, (the risk of falling into a deficit) does not represent a concern,” she said.
While exports have been on a negative mode in the first four months of 2013, there has been strong growth in imports, causing the current account surplus to narrow.
“The strong growth in imports reflects strong investment activities taking place,” she said at the release of the Labuan Financial Services Authority’s annual report here yesterday.
Malaysia’s exports fell 3.3 per cent year-on-year in April, the third straight month of decline, signalling a continued contraction in the short term. Based on three-month moving average, the decline widened further by 5.4 per cent in April (from -3.1 per cent in March), suggesting a short-term weakness in the country’s overseas shipments.
Should external demand weaken further due to a delay in the recovery of major economies that form Malaysia’s major trading partners, exports will continue to contract.
Zeti said Malaysia is well able to absorb and manage increased volatility in the global financial markets as its financial sector has reached a “better degree of maturity” that can deal with volatile inflow and outflow without being destabilised.
However, she said financial players must be prepared and well-positioned to absorb greater volatility in future.
The uncertainties may not only be due to major economies but also policies undertaken by policymakers, which have led to significant spillovers to other parts of the world.
She attributed the country’s economic resilience to the sustained strength of domestic demand.
“In terms of domestic consumption, it is growing at seven per cent, while investments are (growing) more than 10 per cent.”
On concerns of a depreciating ringgit, Zeti stressed that Bank Negara does not look to support the currency at any specific level of the exchange rate.
“From time to time, you may see it move in one direction of strengthening and when the reversal happens you see a depreciation, but over the medium term, what is important is, it should reflect the fundamentals.”
On the tapering of the US quantitative easing stimulus, Zeti said it should be undertaken in an orderly manner without disrupting the international financial markets.
At the same time, countries have to position themselves to better able absorb volatility.
“But as the economy recovers, the financial markets will converge towards a more stable condition... so any such volatility envisaged will be temporary,” she said.
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