OPR at 3% very ‘accommodative,’ says Zeti

KUALA LUMPUR: The overnight policy rate (OPR) at 3% currently is accommodative but will keep tab of inflationary risks, Bank Negara said.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/3/9/business/10881016&sec=business
Published: March 09, 2012

Speaking on the sidelines at the EU-Malaysia Chambers of Commerce and Industry's Quarterly Financial Panel Discussion, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said: “The benchmark interest rate at 3% is very accommodative.

“This is our assessment that we want to be supportive of the economy but at the same time will look out for developments taking place as well as the risk of inflation.”

Many economists expect the central bank to uphold the current rate in its monetary policy committee meeting today in view of the rising inflationary pressure due higher crude oil prices. The OPR has remained unchanged at 3% since last May after rates were raised four times from 2% in March 2010.

Zeti said the country's economy was essentially driven by domestic demand and for the last three years it had grown by more than 6%, adding that private sector investments had also grown significantly and was expected to continue this year.

Besides domestic demand, she added that Government spending in major projects would also drive growth.

Meanwhile, in her keynote address entitled Islamic Finance: New Frontiers in Financing the Economy, she said despite the challenging global environment and the increased uncertainties, the Islamic finance industry had continued to enjoy the double-digit growth of 21%, and total syariah-compliant assets had surpassed the US$1 trillion mark.

There were now more than 600 Islamic financial institutions operating in more than 75 countries in both Muslim and non-Muslim jurisdictions, she added.

Zeti said the emergence of new financial centres in Asia and the Middle East and their increased connectivity had strengthened the foundations for intra- and inter-regional linkages in trade and investments.

The Islamic financial markets, including the sukuk and Islamic money markets, she said had been particularly instrumental in intermediating funds in the Islamic financial system.

It was fast becoming an important platform for international fund raising and investment activities that were generating increased cross-border flows, Zeti said, noting that from an outstanding amount of US$33bil in 2006, the sukuk market had expanded to US$180bil as at end-2011.

“The demand for sukuk currently exceeds the supply, as the high level of surplus savings in Asia and the Gulf region spurs the strong demand. Although the size of the market may seem modest by global standards, the sukuk market has been registering an average annual growth of 40%. The growth of the Islamic bond market in particular, in the current environment also reflects its cost effectiveness.

“An increasing number of multilateral agencies, government agencies and the corporate sector including multinational corporations have relied on the sukuk market as a source for raising financing,'' she said.