BANK Negara Malaysia is not interested in stimulating the economy over the short term but wants to ensure that growth is sustainable in the long term by balancing the different demands in its policies- For instance, while the Malaysian household sector is well buffered, there are vulnerable sectors within it which must be addressed using macro-prudential measures, said Bank Negara Malaysia assistant governor Dr Sukhdave Singh- The loan-to-value ratio (LTV) of 70 per cent that borrowers were subjected to since late last year for third and subsequent house financing facilities was to deter speculative activity- "One of the comments is that BNM was too generous with the LTV but this is where our balancing comes in- There are a lot of young working Malaysians looking for houses and we cannot make loan conditions too tough or there will be an over reaction," he said at a panel discussion organised by the Malaysian Economic Association yesterday to discuss the central bank's 2010 annual report- Unlike advanced economies, economies like Malaysia where savings are high, reduced interest rates would lead to low real interest rates- This would affect savers who will react through moves like hiking property prices which, in the long term, would undermine growth- The central bank, which raised the Overnight Policy Rate (OPR), the key benchmark interest rate last year thrice to 2-75 per cent is expected to raise rates further this year by the market- On the inflation estimates this year to 2-5- 3-5 per cent, he said this was the range which the central bank expects to see shocks- "It does not mean that it cannot spike more than that during the course of the year due to certain developments- For example, if the government adjusts the administered price of fuel, there will be a spike but it will be a one off- "If it stays on, then it is a problem as it points to something sustaining either from demand pressure or second round effects from the price hike-" Under the current setting, there is high inflation which will eat into household income leading to less spending power which subsequently affects consumption and later, growth- He said if core inflation (which strips out food and fuel) rises, then there is reason for the monetary policy to come in play- "We cannot raise interest rates when addressing rising commodity prices, perhaps if the US Federal Reserve raises rates that may help (raise interest rates)-" On the appreciation of the ringgit, he said it was driven by fundamentals and the central bank is careful to make sure that it should not be driven by short-term speculative flows- "If the exchange rate appreciates and helps lower the inflation rate, great, but we do not use it to lower the rate-" Sukhdave also clarified that the annual report captures the inflow and outflow of investments for both foreign and domestic investors abroad- For instance, in 2010, direct investments recorded a minus RM15 billion and this was due to RM42 billion domestic investments abroad while net investment inflow was RM27 billion- "People (mistakenly) think the figure reflects FDI when it is actually a sum of both net foreign and domestic direct investments abroad-" He also said there was a gross outflow of RM68 billion last year with more Malaysian companies investing abroad, mostly in regional economies and that was matched by repatriation of profits and income totalling RM25 billion- FDIs have fallen in recent years but this was mostly due to the structural changes which the Malaysian economy was undergoing- Companies are finding profit opportunities limited within their sectors, preferring to expand their operations elsewhere- BNM has projected a 10 per cent growth in the FDIs this year-...

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