Published October 21, 2009

M'sia still needs fiscal stimulus: central bank

Governor also says economy showing signs of recovery, consumption expanding

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S central bank governor yesterday dismissed suggestions that the government was preparing to relinquish the burden of propping up the economy, saying that the fiscal stimulus was still necessary for this year and the next.

Governor Zeti Akhtar Aziz's comments came three days before Prime Minister Najib Razak will table his inaugural Budget before Parliament and, in many ways, echoed what the premier himself had been saying.

On Monday, Mr Najib defended the necessity of incurring a higher budget deficit saying it was more important than saddling the people with economic woes. 'If we want to inject a big stimulus package, we must accept the additional deficit,' Mr Najib said. 'Which is more important? A bigger deficit or that the people are safe and comfortable?'

Ms Zeti echoed her boss's sentiments. 'Right now, the fiscal stimulus is still necessary both this year and coming to next year,' she told reporters after officiating an insurance conference in Kuala Lumpur. 'Of course it is not sustainable over the medium term and the private sector has to respond and recover.'

Even so, the governor did not elaborate on whether Malaysia needed a new stimulus package on top of the two RM67 billion (S$27.7 billion) stimulus packages announced by the government in November last year and April this year.

Ms Zeti declined to say anything on the federal government's Budget beyond the fact that the government would continue to foster a conducive investment environment for the private sector. But she confirmed that the recovery was on track.

'The economy has already shown signs of recovery (and) unless there are any negative global developments, the current stimulus is already producing results and we are very pleased to see that private consumption is expanding,' she said

The governor's comments are the clearest indication yet that the government hadn't decided on an exit strategy on pump-priming. That and the ballooning budget deficit are the two single most important signals foreign portfolio investors are looking for before restoring their faith in the Malaysian economy.

On another note, the governor said the ringgit's position was entirely due to market forces - the local currency has steadily appreciated against the greenback and currently hovers at around RM3.35 against the US dollar.

Ms Zeti said the central bank did not intervene in the market as it was in an orderly condition. 'Therefore, the need does not arise for central bank intervention,' she told reporters.

'Only when we have excessive adjustments on any particular day which presents risks to orderly market conditions, then the central bank will come in,' she added.

'We have inflows and we have outflows, some days they are about the same so you see quite stable conditions and other days of course, either the inflow or outflow exceeds (the other) and therefore you have appreciation or depreciation,' she said. Malaysia's international reserves stood at US$96 billion as at end-September.