Zeti’s last Bank Negara meeting

Meeting will be closely watched for indications of who will take over from her at helm of central bank, says CNBC.com.

PETALING JAYA: Bank Negara Malaysia’s meeting today will be closely watched for two reasons.

One is it will be the last under BNM governor Zeti Akhtar Aziz and, second, because there may be hints as to who her successor might be, reports CNBC.com.

Zeti has helmed the central bank for 35 years and several names have been proposed to replace her, with some quarters insisting that no politician should be appointed to the coveted post.

CNBC.com speculate that all three of Zeti’s deputy governors are in the running for the post.

Zeti was named Asia’s best central banker in 2010 by Euromoney Group affiliate Emerging Markets.

“It’ll be interesting if they name the successor on Wednesday. I assume they will give the person three months for the transition to take place, so the delay may mean they’re going with somebody internal,” noted Rahul Bajoria, Barclays economist.

With the next BNM meeting slated for May, Zeti leaves behind an economy weighed down by falling oil prices and a political crisis, CNBC.com said.

Malaysia is the world’s second-largest exporter of liquefied natural gas, according to the U.S. Energy Information Administration, so sinking prices put pressure on state finances.

As a result, Fitch Ratings expects the ratio of federal government debt to gross domestic product (GDP) to rise modestly in 2017 but to remain below the authorities’ 55% policy ceiling.

CNBC.com said investor sentiment had been hit by Prime Minister Najib Razak’s alleged corruption scandal. Najib has denied any wrongdoing in relation to the matter and has withstood attempts to remove him from office.

“The new governor needs to communicate a continuity of independent and effective monetary policy-making while staying on the course on fiscal and economic reforms,” said Weiwen Ng, ANZ economist.

Independence from government is key and Zeti assured CNBC in January that the new governor would not hurt the BNM’s credibility.

“There is a governance process in the decision-making process. The selection of the new governor will go through a governance committee of the board made up of private sector individuals,” Zeti said in an exclusive interview with CNBC.

The new BNM governor also needs to place emphasis on no reversion to capital controls or pegs, noted Ng.

“As economists, we note that a flexible exchange rate is the appropriate equilibrating mechanism for an economy to nimbly manage exogenous shocks.

“This is particularly important for very open economies, such as Malaysia. A peg or quasi-peg would certainly limit this flexibility.”

Turning to monetary policy, Zeti’s successor isn’t likely to change the status quo, CNBC.com stated.

BNM has kept its overnight policy rate at 3.25% since July 2014 and no action is expected on Wednesday either, it said.

Recent data may seemingly warrant more stimulus, but economists argue that the economic picture is a bit more mixed.

GDP for 2015 came in at 5% on year, slowing from 6% in 2014.

Data for January showed consumer prices hitting a near two-year high and exports falling for the first time in eight months.

“There’s not much advantage lower rates can bring right now,” explained Barclays’ Bajoria.

“First, you have a currency already under pressure so rate cuts would exacerbate that. Moreover, fiscal policy is generally contractionary and household debt is quite high, so the impact of a 25 or 50 basis point cut won’t be huge,” he told CNBC.com

Last year, the ringgit was Asia’s worst-performing currency, down nearly 19% against the greenback, while foreign reserves dropped 18%, it added.

The new governor may also find setting monetary policy-making more challenging once the Federal Reserve commences its normalisation of U.S. interest rates, Ng warned.