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1- Highlights – M’sia cbank head on Q GDP data

Posted on: May 31, 2009


Reuters – Thursday, May 28

KUALA LUMPUR, May 27 – Following are the highlights of Malaysian central bank Governor Zeti Akhtar Aziz from her press conference on Malaysia’s first quarter GDP data which showed the economy contracted by 6.2 percent in the first quarter.

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“We are now going into the third month of the second quarter, we are almost completing the second quarter and what we see is that the export sector or external demand continued to remain weak and the environment is still challenging.

“Despite early signs of improvement…(second-quarter will be) very similar to the first quarter. But significant improvement will be seen in the third quarter. There is a higher degree of confidence of a positive growth in the fourth quarter.” Did the magnitude of contraction in Q1 surprise the central bank?

“The central bank already announced that growth will be significantly affected. We already anticipated a very slow growth as the financial crisis has become more prolonged than earlier expected and the deterioration in global economy was far greater than expected.

“There is a high degree of uncertainty in the global environment, therefore we decided to reduce interest rates and we said we frontloaded it, because the deterioration was far more severe than what we had previously anticipated.”

On a new 2009 GDP forecast

The prime minister has mentioned… that he will be announcing tomorrow.

Intervention on the ringgit?

“For us the exchange rate does not represent a policy instrument, therefore we do not target any specific level or band, orderly and functioning foreign exchange market…we do not want a situation of too great uncertainty in the foreign exchange market.

But hasn’t Malaysia missed its growth target consistently?

“Malaysia has achieved significant progress on two fronts, the domestic economy has become more significant, consumption, for example, has increased so consumption demand has become more important.

“We are moving away from an export-dependent economy to become a domestic significant economy. The domestic sector has been a major driver of growth since 2003, contraction today will be far worse if not for our domestic economy.

“We are moving to a more diversified economy, had we not built and strengthened the services sector, our economic contraction today will be far worse.”

Is the ’09 inflation forecast maintained at 1.5 to 2 percent?

“Yes.”

Are we already in a recession?

“We always look at two quarters of negative growth but it’s not constructive to look at this, but to look at the prospects of does Malaysia come out, Malaysia does, we are not facing a financial crisis and we are not overleveraged.”

“Stability has emerged in the labour market, the commodity and the stock market and a decline in inflation will improve the purchasing power and the capacity that we have to provide the stimulus package … all these the prospects of full positive growth going into the final quarter of the year and going into 2010.

As for the budget deficit? What strategy does Malaysia have to counter that?

“State intervention can only be temporary. For others, where they have to repair their financial systems, they are providing life support, for us it is providing support to the economy rather than to the financial system, because our financial system is not facing a crisis. None of the Asian financial systems are facing a financial crisis. Therefore, we anticipate that following this period of uncertainty going into next year, the government can slowly exit from this extensive massive stimulus and that the private sector will assume a greater role in the economy.”

So there is no positive growth for Q3 yet?

“There is a great uncertainty. Our assessment is there will be an Improvement. But the extent of the improvement will depend on the external environment as well as the extent to which the domestic environment turns positive arising from all the measurements that have been introduced including the fiscal measures, the cumulative monetary policy measures, the measure to increase the access to financing.

(Reporting by Soo Ai Peng and Loh Lilian, editing by Niluksi Koswanage)

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