Banking & Finance

Act pre-emptively to address Vulnerabilities, Risks, Imbalances - BNM Governor

Date: 28 March 2018; Type: Industry Updates; Source: Bernama

KUALA LUMPUR, Mar 28 (Bernama) - Continued vigilance together with the ability and will to act pre-emptively to address the build-up of vulnerabilities, risks and imbalances are critical to secure Malaysia's growth prospects, says Bank Negara Malaysia (BNM) Governor Tan Sri Muhammad Ibrahim.

"It is during good times that reforms should be accelerated. The present strength of the economy should not lull us into policy inactions," he said in the 2017 BNM Annual Report released here today.

For Muhammad, 2017 was a year of resurgence as the economy had performed strongly, with its diversified structure not only enhancing its resilience, but had also placed the country in a position to benefit from the global upturn.

He said Malaysia should capitalise on the current upswing to build policy space, fortify the financial system, bolster domestic reforms, tackle long-term growth obstacles and nurture the people.

He pointed out that challenges remained despite notable progress and reforms made over the decades to strengthen resilience, improve economic fundamentals and deepen the financial markets.

In the Report, he said the central bank had initiated a series of pre-emptive measures to future-proof the economy, citing measures by the Financial Markets Committee to develop, strengthen and further liberalise the domestic financial markets.

Reassessment of investment incentive frameworks too is done to promote higher quality domestic and foreign investments, while in the labour market, there has been a concerted effort to upskill the workforce, notably in the financial sector, to meet the growing demands of an evolving economy.

Beyond aiming for robust, sustainable growth, the central bank is conscious of the gravity in delivering growth that is equitable and inclusive, hence the need for a continued evaluation of policies to ensure that they achieve the intended outcomes.

"For one, policies involving cost of living issues should not only focus on cost-related solutions, but also encompass more income-enhancing measures," he said, adding that the provision of a living wage that commensurated with productivity could be a step towards attaining a higher and quality living standard.

In the current competitive and rapidly changing environment, Muhammad said BNM would continuously reassess, re-calibrate and refine policies to ensure that policies remain relevant.

"We will continue to be receptive to ideas that may not conform to conventional thinking; be willing to innovate; and be ready to act decisively to remedy policy weaknesses for the benefit of the economy," he said.

While the right policies are paramount to provide the enabling environment for the economy to prosper, he stressed that the private sector was the one which should drive change and lead the economy towards greater sophistication with higher value-added activities and higher overall productivity.

In this respect, buffers, capacity, and capabilities need to be strengthened to ride the next wave of economic development.

Strategic investments, both in skilled human capital and cutting-edge infrastructure, should be prioritised to increase competitiveness as the nation continues its pursuit towards innovation-led growth.

In the Report, the Governor pointed out the three key risks that could disrupt the robust economic growth moving forward, the first being the risk of a premature or over-tightening of global monetary accommodation.

"While much has been accomplished since the Global Financial Crisis to put the global economy back on track, finding the balance between premature tightening and prolonged easing will continue to be a challenge for policymakers," he said.

The second major risk is a sharp correction in global financial markets that may reignite extreme market volatility and derail the global growth momentum.

Amidst the extremely low volatility environment in 2017, global financial markets performed strongly and reached historical highs in some key markets but he pointed out that low volatility does not equate to low risks.

A third risk is the escalating trade tension, whereby an economic fallout from protectionist policies may undermine the sustainability of global growth.

"While these risks may seem daunting, the future holds many promises. Technology will continue to be a key catalyst for growth. Embracing digitalisation is no longer an option but an imperative," he said.

He said the present policy debates have rightly been focusing on maximising the economic benefits, while confronting the threats that may arise from this trend.

This must include avoiding a digital divide and ensuring that the benefits of the digital economy reach all segments of society.

"Our nation has proven its agility to flourish in an environment of rapid change. I am confident in our collective strength to thrive in the ever competitive environment to the ultimate benefit of our country and people," he added.

MY Bernama

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