Economy on a firmer growth trajectory, says governor

According to Nor Shamsiah, the country’s economy is supported by domestic activities and positive external demand


MALAYSIA’S economy is on a firmer growth trajectory and no longer in a state of crisis, according to Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus (picture).

She said that the central bank through the Monetary Policy Committee judged that it was the right time to begin withdrawing the excess support, revising the Overnight Policy Rate from its historically low 1.7%.

“What is important is by acting pre-emptively, we will be in a position to undertake the adjustment to the monetary policy setting in Malaysia gradually, and this is also to restore and support sustainable growth over the medium and longer term.

“The timing, pace and extent of interest rate increases will be guided by assessments,” she said while speaking at the 12th International Conference on Financial Crime and Terrorism Financing 2022 (IFCTF 2022) in Kuala Lumpur today.

She emphasised that the country’s economy is firmly on a recovery path currently, supported by domestic activities and positive external demand.

Commenting on rising prices, Nor Shamsiah said the current situation is a global phenomenon, and Malaysia is impacted due to the indirect effect of high global commodity prices, as they are the key driver of the rise in producer input costs.

She added that inflation development in Malaysia this year reflected the pass-through of some of these costs as well as the strengthening domestic demand.

“Consequently, although the headline inflation is projected to remain low and stable and range between 2.2% and 3.2% this year, core inflation increased to an average of 2.2% in the first six months of this year, compared to only 0.7% in 2021,” she said.

Moving forward, Nor Shamsiah said the Malaysian economy is expected to grow steadily in 2022 and 2023, despite continuing challenges from rising cost pressures, the Russia-Ukraine military conflict and China’s strict containment measures against Covid-19.

She said Malaysia is benefitting from strong demand for the country’s exports, especially electrical and electronics, as well as commodity-based products and diversified export products, and the market would continue to support the country’s export growth.

“Based on observation, we are seeing increased strength in domestic demand and domestic spending, particularly consumers’ expenditure, of which retail sales, debit card transactions and consumer goods imports have exceeded pre-pandemic levels,” she noted.

Nor Shamsiah added that the strengthening job market had benefitted the country’s economy, and 26,000 new jobs were created in the first three months of this year, similar to pre-pandemic levels.

“Simultaneously, job vacancies and wages are also rising, which would further reinforce the recovery in domestic demand going forward,” she added.

On ringgit, Nor Shamsiah said the local note has remained broadly stable when compared to currencies of Malaysia’s major trade partners, while the country’s nominal effective exchange rate registered a marginal decline of about 0.1%.

She highlighted that the dollar index has increased by 11.5% this year, which is the highest in two decades, and that most regional currencies, including the ringgit, have depreciated relative to the dollar.

“In short, Malaysia’s economic recovery is well underway.

“BNM continues to use the tools at our disposal to ensure movements in the ringgit are orderly, in an environment of aggressive monetary policy tightening by the US Federal Reserve,” she noted.

She also stressed that it was essential for Malaysia to build its resistance to future crises to maximise the country’s full potential.

“We must address long-term vulnerabilities and strengthen our resilience against future shocks, while also attracting quality investment, increasing economic complexity, and creating quality jobs for Malaysia,” she said.