KUALA LUMPUR: Countries have to position themselves to better absorb the volatility generated by the tapering off of US quantitative easing exercise, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said.
She said the financial markets would converge towards a more stable condition as the economy recovered.
“Any such volatility is envisaged to be temporary,” she told reporters here yesterday.
The market turned cautious in recent weeks due to persistent speculation about the US Federal Reserve withdrawing its stimulus programme.
“Any tapering off occurs because there is recovery in the economy. It was known that this would eventually happen one day.
“In fact, the monetary easing policy of having rates too low for too long has other risks associated with it.
“What happens is this should be undertaken in a very orderly manner and this is what we are looking for, that it happens in an orderly manner without disrupting in a major way the international financial markets,” said Zeti.
On the concerns over narrow trade balance and current account surplus, Zeti said, the major economies, including the US and Japan, were now stabilising, resulting in export growth.
“In any event, what is important to recognise is during the years that we had a very significant surplus.
“We have been able to build up our reserves which are now in very strong position of over US$140 billion equivalent and these are important in supporting our external position,” she said.
Zeti said the country would benefit from this due to better investment climate and the improved cost of doing business that Malaysia continued to receive a steady inflow of foreign direct investment.
“This is the longer term inflows that could finance in the event that we have a current account deficit. Therefore it does not represent a concern,” she said.
On currency volatility, Zeti said, the financial market players had to be prepared in order to absorb the volatility in the current environment.
“Our mandate is maintaining orderly foreign exchange market condition. We see depreciation but over the medium term what is important is it reflects our underlying fundamentals,” she said. — Bernama