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‘Malaysia’s financial system can absorb volatilities’

Publication Date : 20-09-2012


The recent US Federal Reserve's third round of quantitative easing (QE3) will not have much impact on Malaysia as the country's financial system is strong and capable of absorbing any financial volatilities arising from this move.

Dr Zeti Akhtar Aziz, governor of central bank of Malaysia Bank Negara, said though the quantitative easing exercise had implications on the volume of liquidity in the international financial system, the domestic financial system was now more developed with strong intermediaries capable of absorbing any volatilities from this exercise.

“We have surges of inflows but also have reversals and previously would have been destabilised if it was more than 10 years ago. But in the current environment, we have advanced significantly to enable us to intermediate these volatile financial flows,” she said on the sidelines of the third Global Islamic Finance Forum (GIFF) 2012 in Kuala Lumpur.

The QE3, designed to bolster the US economy, would involve the Federal Reserve buying US$40 billion (122 billion ringgit) of mortgage debt a month.

Zeti said the previous measures to strengthen the financial system over a 10-year period was sufficient to manage any volatility of financial flows.

“These measures are sufficient now to deal with this kind of volatility, and most of all, as we have also liberalised, we are seeing inflows and outflows, and inflows by our own corporate sector and funds, including pension funds.

”And because of this, we are seeing two-way flows and this also mitigates some of the inflows and outflows that are generated by external developments,” she added.

Among some the measures the central bank undertook over the 10 years were the development of the bond market, consolidation of the banking sector, liberalisation of foreign exchange administrative rules, move to greater market orientation and a more flexible exchange rate regime.

Asked on her views about the recent spate of initial public offerings of Malaysian companies, she said it reflected the growing investment activities in the country and was an encouraging trend, adding that it enhanced the prospects of Malaysia's future growth.


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