Ms. Zeti, in an interview with The Wall Street Journal, predicted economic growth between 5% and 6% “going into next year,” adding she wasn’t troubled by signs of economic softness in Europe and particularly in China, the country’s largest trading partner.
“We see ourselves on a steady growth path,” she said. Pockets of weakness in the outlook emanate largely from temporary factors such as budget reforms and tax reforms, and are therefore not a cause for concern, Ms. Zeti said.
“We believe that at this point in time we need to still have an accommodative monetary policy,” Ms. Zeti said. “We’re not out of the woods because the global environment is still very uncertain.”
“We believe the second-round effects of these price increases is not going to be significant because there’s some moderation in demand, external sources of inflation are subdued and then wage pressures are also absent,” Ms. Zeti added.
Speaking on the sidelines of an International Monetary Fund conference, she said therecent slowdown in China wasn’t worrisome because it had been the result of a conscious effort to trim some of the excesses in the property and construction sectors. She says the world’s second-largest economy has the resources to sustain a growth rate of 7% or higher for the foreseeable future.
“They have these measures to rein in excesses and implement structural reforms and if there’s an overadjustment in terms of the impact on growth, they are in fiscal surplus, so they have the policy space to support the economy,” she said.
“I believe that they will pursue this steady growth in the region of 7%-7.5% and for us that’s a very positive development,” Ms. Zeti said.
In line with a global selloff, Malaysia’s FTSE Bursa Malaysia KLCI index dropped 1.1% Friday to close at its lowest level since mid-March, as regional sentiment sourced on concerns about weaker global growth and falling oil prices.
Ms. Zeti quipped that Malaysia, which implemented capital controls before institutions like the International Monetary Fund saw a role for them, proved to be ahead of its time in terms of developing targeted policies that could restrain activity in certain sectors without derailing the economy.
She said she favors using such tools—now referred to as macroprudential—rather than interest rate policy, to address pockets of trouble in financial markets that are unlikely to have broad effects on the real economy. Such tools include loan-to-value limits, minimum down-payment requirements and a range of other measures.
“We’ve been introducing those since the 1990s—before the word [macroprudential] existed,” she said.
“We have to pay equal attention to financial stability but not necessarily use monetary policy at all,” she said, adding the Malaysian central bank since 2009 has laid out well-defined criteria for financial stability.
That question is still being hotly debated within the U.S. Federal Reserve, whose confidence in the once widely held view that the central bank could allow potential bubbles to develop without reacting pre-emptively was shaken by the 2007-2009 financial crisis.
Ms. Zeti has led Bank Negara Malaysia since 2000, and was the first woman in the position. Before that she had been the deputy governor and acting governor through the Asian financial crisis in 1998.
Write to Pedro Nicolaci da Costa at firstname.lastname@example.org