Inflation to remain manageable

by **Cals** Thu 20 Mar 2014, 08:19

[size=33]Inflation to remain manageable[/size]

Posted on 20 March 2014 - 05:39am

Ee Ann Nee
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[size=14]KUALA LUMPUR: Rising domestic costs is expected to nudge Malaysia's headline inflation rate to a high of 4% in 2014, compared with 2.1% in 2013, said Bank Negara Malaysia (BNM) Governor Tan Sri Dr Zeti Akhtar Aziz.

However she said inflation is expected to average at a manageable 3% if there is no further subsidy rationalisation this year.

"It will be close to 3% if it (subsidy reduction) does not happen and 4% if it happens," Zeti said at the release of the BNM Annual Report 2013 and the Financial Stability and Payment Systems Report 2013 here yesterday.

She said that higher cost pressures would be partly contained by subdued external price pressures, continued expansion in domestic capacity and a moderation in domestic demand.

As at December last year, inflation was at 3.2% due to price adjustments of goods and services arising from the subsidy rationalisation.

On the possible adjustment of the interest rate, Zeti said BNM will continue to make assessment.

"If there are signs of inflation becoming persistent and pervasive, or alternatively, if there are signs or risks that growth will slow significantly, or if there are signs of destabilising build up or financial imbalances...these are considerations that we'll take into account."

She said most countries' interest rate policy is based on domestic considerations.

"The primary aim of monetary policies is to address risks to monetary stability in an environment of sustainable growth. While we take into account what has happened around us, we don't just rely on monetary policy. It is not the only policy tool we have that is available."

On household indebtedness, she said this is one area where macro prudential measures is effective and have shown results, with a non-performing loan ratio of less than 2%.

"We've implemented them gradually and incrementally to avoid an over adjustment. We don't want a collapse of the property sector by tightening so aggressively. The banks, under the responsible lending guidelines, will make the affordability assessment," she said
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