UPDATED
KUALA LUMPUR, Jan 29 — Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz says there is a need to look at normalising interest rates though there is no formation of an asset bubble currently but there are other risks of financial imbalances.
“Should interest rates go too low and (remain so) too long, it could result in people moving outside the formal financial system to enhance their returns on savings and result in taking higher risks without realising it and this may result in problems later on,” she said.
To avoid mispricing of risk as interest rates were too low and too long, Zeti said drastic measures would have to be implemented to avoid problems before it happened.
“A distinction should be made between normalising interest rates and tightening rates as the policy thrust is to remain accommodative to support growth, especially in an environment where inflation is going to remain modest,” she told reporters after a public lecture by Dr Abbas Mirakhor, the first holder of the International Centre for Education in Islamic Finance (INCEIF) Chair.
Zeti said interest rates were reduced at significant levels previously under emergency conditions to avoid a fundamental recession and so the rates went down at an unprecedented level.
“It should not be looked at as tightening. A distinction has to be made between normalisation and tightening,” she said.
Zeti said currently there was no excessive leverage on home loans and no formation of an asset bubble.
“Borrowings of households still remain at prudential level” she said. She said wide-ranging measures were taken by agencies and advisory services were available to help people manage their debts.
On banking licences, Zeti said the decision would be announced in the first half of this year as the central bank was evaluating the applications.
The deadline for applications lapsed in December last year. — Bernama
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