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KUALA LUMPUR: Malaysia does not have to resort to unconventional monetary policy as the country’s deep bond market and diverse set of institutional investors are enough to absorb a larger supply of bonds, said Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus.
She said that although Malaysian government (MGS) securities are on an upward trend, the bond market has registered a healthy supply-hedge relationship.
According to her, Malaysia’s large debt market mitigates the need for unnecessary unconventional monetary policies, suggesting that the government does not need to ask the central bank for help.
“The government has no urgent need to come to us; they don’t want to, either, given the risks to investor sentiment and market performance, particularly when our bond market is doing well,” he said yesterday in a virtual briefing. with the senior editor.
Nor Shamsiah further explained that the distinctive interest rates between advanced and emerging economies, as well as different motivations, are the driving factors for central bank asset purchases.
“The bond market in Malaysia is more stable and less volatile, therefore there is no need for large-scale asset purchases,” he said.
Globally, the Bank of Indonesia, as well as British and Australian central banks, are focusing on unconventional ways to revive their economies, one of which is through direct purchases of government bonds to support economic stimulus measures. of governments to combat COVID-19 shocks.
Nor Shamsiah reiterated that, in general, interest rates in advanced countries are around 0.1%; therefore, it forces them to embark on large-scale asset purchases to introduce additional economic stimulus.
“None of the emerging economies has an interest rate as low as the advanced economies; therefore, when we make an asset purchase, it is to address the market dislocation and excessive volatility in the domestic financial market,” he said.
Addressing concerns about Malaysia’s exposure to sovereign debt ratings by credit rating agencies, the governor said the 2021 Budget sets a path to consolidation over the medium term, with a projected fiscal deficit at around six percent. percent of Gross Domestic Product (GDP) this year and drop steadily to 5.4 percent next year before dropping further to four percent in the next three years.
“If the percentage of public debt in relation to GDP is considered, the level stood at 52.5% before the COVID-19 crisis and grew to 61.1%, which is still below the median of A-rated peers at 61.8%. Malaysia has relied on fiscal stimulus, additional spending, and government strengthening of the social safety net to cushion the impact of COVID-19’s impact on GDP , which has led to an increase in the level of public debt, “she said.
The level of China’s government debt to GDP was 62.7%, Japan 261.9% and Iceland 37.1%.
“When we look at the composition of public debt, it is one of the stimulus measures and it will not result in a structural increase in operating spending; and once this fiscal stimulus has expired, the level of debt to GDP and the fiscal deficit will be they can normalize to a four percent pattern in the long run, “he said.
Nor Shamsiah also emphasized that the rating agencies are considering other indicators, including the inflation rate, volatility, fiscal consolidation, indicator of corruption and governance, competitiveness of the economy and flexibility of the economy.
“Malaysia’s inflation rate and volatility are among the lowest among our peers. We have consistent fiscal consolidation and we are also in the median of our A-rated peers in terms of other indicators,” he said.
Malaysia’s long-term real GDP growth remains above the A-rating median (2.6%) and stood at 4.1%, compared with Japan’s 0.3%, 0.2 % from Spain, 5.4% from Ireland and 6.7% from China. – Bernama
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