Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz has just informed us that Malaysia is clearly on the path of economic recovery.According to this lady central bank governor, improvement in leading global economic indicators will mean the possible end of the current loose monetary policy.
Fourth quarter economic performance in 2009 was better than expected. The country as such is no longer under the yoke of extraordinary circumstances.
In fact, several central banks have started to tighten monetary policy particularly the Reserve Bank of Australia [RBA]. RBA has raised its key policy rate three times in 2009 while the US's Federal Reserve has just raised the discount rate charged to banks for direct loans by 25 basis points to 0.75% on 18 February 2010, buoyed by rosier economic data and improved market conditions.
“Any adjustment in interest rates will be to achieve a normalisation and not a tightening,” Zeti clarified.
Bank Negara has left the interest rate at 2% since early last year but improvements in factory output as well as exports have fuelled speculation that the central bank would raise the key policy rate – the overnight policy rate – sooner than the commonly held view for second-half 2010 rate hikes.
A report by Standard Chartered Global Research puts the next rate hike as early as March 4, a week after the scheduled release of the fourth quarter’s gross domestic product (GDP) data this Thursday.
TA Securities Holdings Bhd economist Patricia Oh had said in an earlier StarBiz report that there could be a rate hike as early as May based on the stronger GDP numbers for the final quarter of 2009 and the expected improved numbers for the first quarter of 2010.
However, economists also believe that any “normalisation” of interest rates would come only if the central bank sees the recovery gaining momentum and to prevent any build-up in financial imbalances.
So,what would it be then,Zeti?
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