Policies, measures beyond Central Bank's mandate will dampen investors' confidence

KUALA LUMPUR - The implementation of policies and measures that go beyond Bank Negara Malaysia’s (BNM) mandate will bring about detrimental effects on investors' confidence and impact the country negatively.

The central bank said the loss of confidence in the ringgit and domestic government bond market will result in a huge cost to Malaysia, especially as the country is part of the international financial market.

"This will also negatively impact capital flows, financial markets and the ringgit’s exchange rate, and increase the cost of living,” BNM told Bernama today.

The central bank was responding to UMNO Youth chief Datuk Dr Asyraf Wajdi Dusuki’s proposal on the possibility of BNM buying up the Employees Provident Fund’s (EPF) assets to facilitate the implementation of i-Citra and whether BNM can implement this proposal.

i-Citra is a facility that allows EPF contributors to withdraw from their retirement savings.

According to BNM, the purchase of government bonds is part of its activities governed by the bank’s Act and mandate, specifically to manage the liquidity in the banking system and maintain an orderly market.

"These activities involve cost and it (cost) depends on market conditions,” the central bank said.

BNM said this matter differs from the non-conventional monetary policy which is normally implemented in economies with close to zero per cent or with negative interest rates such as the United States (0.25 per cent), United Kingdom (0.50 per cent), Japan (-0.10 per cent), and the European Union (-0.50 per cent).

"They, therefore, have limited conventional monetary space.

"Malaysia does not need to use unconventional monetary policy as the conventional monetary policy space is sufficient, with the overnight policy rate (OPR) at 1.75 per cent,” BNM said.

It said there are signs of economic recovery currently and there is no need to dampen investors' sentiment and create unnecessary risks given that Malaysia's economy is small and open.

"The focus should be more on structural policies to ensure economic growth and well-being of the people for the long term.

"This includes a continual focus on improving policies related to providing social safety nets and encouraging the creation of better job opportunities,” BNM said.- BERNAMA