Independence will be watched

THE appointment of Datuk Nor Shamsiah Mohd Yunus as governor of Bank Negara comes at a time when there is an ongoing shake-up in the country.

The reform process is underway and gathering speed. Revelations of past misdeeds and grand scale corruption along with unethical practices may have frayed the nerves of some of the most ardent of political watchers or served to justify what many have been saying about how the country has been run for some time.

Whatever the case, the buzzwords of rule of law, which is now a mantra of the new Government, must not only be heard but also seen. And it will be seen in the actions undertaken by the new central bank chief.

Policies crafted by the central bank are essential in a number of industries. Banking and real estate are directly influenced by the lending rules drawn up by the central bank. Its reach is extensive given how the use of credit permeates all layers of business, industry and society.

The challenge for Shamsiah is to show the independence of the central bank. The bank has some hard decisions to make in the coming months as the Government seeks to improve financing eligibility for home buyers.

Some have asked for a limited return of DIBs in a way to get the property sector moving but that scheme has been banned by every other country given how it fuels price inflation in property that is already out of reach for the average Malaysian.

There will be also pressure on the direction of interest rates in the country. With the US now raising its interest rates, whether Malaysia maintains to keep a decent spread between US and local rates will be keenly watched. The cut in govern- ment spending and the changes undertaken by the new government will put pressure on growth in the short term, exacerbating the need for a supportive rate cut if necessary.

But the return to normalisation is something most have been asking for some time. It will be watched how Shamsiah navigates through varying needs.