 |
With a decade’s experience, it’s little wonder that Zeti Akhtar Aziz has remained ahead of the curve on monetary policy After a decade as governor of Malaysia’s Bank Negara (BNM), Zeti Akhtar Aziz can reasonably claim some credit for the soaring cityscape and throbbing economy beyond her office window.
Her term has coincided with much drama in Malaysia’s too often overlapping political and economic spheres: three prime ministers, an emboldened opposition railing at a ‘politicized’ civil service, and a wind- ing back of the Malay-advantaged ‘new economic policy’.
But over the past year, in the wake of the global crisis, Malaysia has had to grapple with a new reality for emerging economies: a sharp rebound in growth and unprecedented capital flows to the region; and with them, renewed fears of inflation and asset bubbles in Asia.
Against this, Zeti has been amongst the most proactive central bankers anywhere. BNM raised its base policy rate three times this year, marking Zeti out as the only central banker to have acted pre-emptively – and decisively – against inflation.
“Malaysia wisely moved to withdraw the accommodative stance as economic rebound gathered pace,” says Rahul Bajoria, economist at Barclays Capital, who predicts the economy will grow 7.5% this year.
A study by Citigroup concludes that the central bank’s 25bp policy hike in March, May and July soundly anticipated inflationary pressures and was based on the right estimate of the country’s output gap.
Indeed, analysts surveyed by Emerging Markets agree that Zeti’s proactive monetary loosening at the onset of the global crisis and sure-footed ahead-of-the-curve tightening highlights both the sophistication and confidence of the central bank – and should help to anchor medium-term inflation expectations. This stands in contrast to much of the rest of Asia, where, despite red-hot regional growth, policy rates have yet to normalize post-crisis.
“It’s easy to be wise after the event, but we have tried very hard to be wise before and during the event,” says Zeti.
Zeti came to office in 2000, as the storms of Asia’s financial crisis still hung heavy and when mainstream economists were much divided about the prudence of Malaysia’s tactics, then seen as the handiwork of the country’s feisty long-term leader Mahathir Mohammed. The argument has swung to Kuala Lumpur’s side, with Malaysia’s prolonged growth and Mahathir’s smooth retirement in 2003 after 21 years.
That Malaysia’s economy has continued to expand with vigour, absent bank failures and major interruption in investment, is “very pleasing”, Zeti says. Despite Malaysia being one of Asia’s more globalized economies, as a contract manufacturer in areas such as technology, Zeti says Malaysia was spared stinging damage from the 2008 crisis because of well-timed macro-prudential measures beyond the traditional central bank levers such as interest rates.
She cites portfolio restrictions and a capital gains tax revision to dampen speculation, and a “general flexibility in policy” as keys to limit deeper impact. “What paid off for us [from the experience of 1998] was early intervention, anticipating that the worst is yet to come, and taking action to address that.”
By way of example, she points out the central bank had re-activated a dormant corporate debt restructuring committee to monitor corporates and stem crippling defaults. “To support growth and access to the market of viable companies, we also activated a credit enhancement entity to help raise funds in the bond market, supported by a guarantee,” she says.