BANK Negara Malaysia is assessing on whether there is a need to review the country’s interest rates.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the central bank is currently assessing the economic trends such as future inflation trends and the global economic situation.
“Bank Negara will review interest rates based on current inflation and the global economic situation. An assessment on whether there is a need to change interest rates will be made at the next monetary policy committee meeting.
“We will look at future trends in inflation to see if it will moderate further,” Zeti told reporters on the sidelines of the 26th East Asian Insurance Congress here yesterday.
Malaysia currently has an interest rate or overnight policy rate of three per cent.
Zeti said the global economy’s future direction will be taken into consideration as the external sector has eased significantly in the second half of the year.
“The external sector’s economic progress has slowed more than expected but we have already expected it.”
Zeti said for Malaysia, the economy did better in the first half of the year, registering a gross domestic product growth of 5.1 per cent which is expected to maintain its streak in the second half of the year.
Malaysia has forecast a GDP growth of between four and five per cent this year.
Meanwhile, on the insurance sector, Zeti said there has been some market driven consolidation in the insurance sector this year which is not driven by any policy under the central bank.
“There is a need for the industry to be sustainable and therefore the smaller insurers have been absorbed and merged.”
Earlier in her keynote address, Zeti said insurance companies have generally held up well through the crisis but now the industry finds itself at the intersection of major regulatory developments.
“The crisis has also delivered a major blow to confidence in financial institutions. This needs to be regained. Both these factors will have an important influence on the way in which the industry responds to new insurance and asset accumulation opportunities in Asia.
“We can expect that the characteristics of growth in the industry going forward will therefore differ in some respect from the historical experience.”
She said changes in the capital rules and related accounting standards aim to achieve a more risk-based and market consistent valuations of insurance assets and liabilities.
While this should improve understanding and accounting for the risks inherent in insurance business, it will also require insurers to manage more carefully risk and capital, while recognising the prospect for increased short-term volatility.