‘Govt to keep weighing new policies’
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