‘Govt to keep weigh­ing new poli­cies’

New Straits Times - - BUSINESS / NEWS -

KUALA LUMPUR: Malaysia will con­tinue to in­tro­duce new poli­cies to pre­serve the coun­try’s macroe­co­nomic and fi­nan­cial sta­bil­ity when faced with ex­ter­nal spillovers that could lead to in­creased volatil­ity, said the cen­tral bank.

These poli­cies should take into ac­count is­sues that are unique to the do­mes­tic en­vi­ron­ment, and may not be con­strained by con­ven­tional tenets of pol­i­cy­mak­ing, said Bank Ne­gara Malaysia .

“In­stead, new and untested strate­gies should be con­sid­ered,” it said in a spe­cial box ar­ti­cle “Un­ortho­dox Mea­sures for Un­con­ven­tional Times” re­leased to­gether with the fourth quar­ter gross do­mes­tic prod­uct fig­ures yes­ter­day.

Bank Ne­gara cited as an ex­am­ple the se­ries of mea­sures in­tro­duced by the Fi­nan­cial Mar­kets Com­mit­tee since late 2016 to clamp down on non-de­liv­er­able for­wards or off­shore mar­ket trad­ing for US dol­lar/ring­git.

“As a re­sult, do­mes­tic fi­nan­cial mar­ket con­di­tions im­proved sub­stan­tially. Volatil­ity in the ring­git ex­change rate de­clined and spec­u­la­tive pres­sures sub­sided,” it added.

Ex­ter­nal chal­lenges to Malaysia and other emerg­ing economies re­main, said Bank Ne­gara, in the form of large cross bor­der cap­i­tal flows, ag­gres­sive yield seek­ing be­hav­iours by in­ter­na­tional in­vestors, and sud­den shifts in sen­ti­ments that can am­plify fi­nan­cial mar­ket boom-bust cy­cles.

“In this new nor­mal, it be­comes more im­por­tant for pol­i­cy­mak­ers in emerg­ing economies to con­tin­u­ously re­think and rein­vent pol­icy ap­proaches. In such un­con­ven­tional times, un­ortho­dox poli­cies may be the new trump card,” it said.

Bank Ne­gara high­lighted three prin­ci­ples that would guide pol­icy ap­proach.

First is pol­icy flex­i­bil­ity and prag­ma­tism. Pol­i­cy­mak­ers should be bold and timely in in­tro­duc­ing new pol­icy tools when it be­comes nec­es­sary, and not shy away from new and untested ideas that may go against the grain of con­ven­tional wis­dom.

Sec­ond is pol­icy au­ton­omy. Every econ­omy has its own cir­cum­stances and chal­lenges, and do­mes­tic pol­i­cy­mak­ers have greater un­der­stand­ing of lo­cal is­sues than in­ter­na­tional or­gan­i­sa­tions like the In­ter­na­tional Mon­e­tary Fund or Bank for In­ter­na­tional Set­tle­ments.

The third prin­ci­ple is clear and trans­par­ent com­mu­ni­ca­tion. Im­ple­men­ta­tion of new and untested poli­cies re­quire pol­i­cy­mak­ers to com­mu­ni­cate the mo­ti­va­tions and in­ten­tions be­hind the poli­cies to the pub­lic.

“This avoids a sit­u­a­tion where the pub­lic is quick to re­act neg­a­tively and dis­miss poli­cies un­fairly. Con­stant en­gage­ments through var­i­ous plat­forms are vi­tal to in­ter­nalise the con­cerns and po­ten­tial dif­fi­cul­ties faced by the in­dus­try and mar­ket par­tic­i­pants. These con­struc­tive en­gage­ments will en­sure the ef­fec­tive im­ple­men­ta­tion of pol­icy mea­sures,” said Bank Ne­gara.

In this new nor­mal, it be­comes more im­por­tant for pol­i­cy­mak­ers in emerg­ing economies to con­tin­u­ously re­think and rein­vent pol­icy ap­proaches. BANK NE­GARA MALAYSIA

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