KUALA LUMPUR: Malaysia's central bank said on Thursday (Mar 23) it expects economic growth to pick up in 2017 for the first time in three years, but suggested it was in no rush to roll back measures imposed last year to stabilise the fragile ringgit currency.
Bank Negara Malaysia, in its annual report, projected the economy to grow 4.3-4.8 per cent this year, compared with last year's 4.2 per cent.
The target, if achieved, would end two years of slowing growth and provide a boost for Prime Minister Najib Razak, who has to face an election by mid-2018, and might call it in the second half of this year.
"With the gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand are expected to collectively support Malaysia's growth performance," BNM said, unveiling its 2017 forecasts.
The bank said domestic demand will continue to drive growth, underpinned by private sector activity. Headline inflation will be 3 to 4 per cent, against 2.1 per cent last year, BNM said.
Growth in Southeast Asia's third largest economy has faltered in recent years, due to weak commodity prices as well as tepid foreign investment, seen as a reaction to a financial scandal involving state-owned 1Malaysia Development Berhad (1MDB).
But Malaysia, the world's second-largest exporter of liquefied natural gas, is projected to see improved commodity prices this year. Total exports are forecast to rise 5.5 per cent, compared with 1.1 per cent in 2016.
WHITHER THE RINGGIT?
The central bank also sees the fiscal deficit narrowing to 3.0 per cent from 3.1 per cent in 2016. It said its 2017 commodity revenue projections were based on a crude oil price of US$50-US$55 per barrel and palm oil at of 2,700 ringgit per tonne.
A big unknown for 2017 is movement of the ringgit, which has been volatile, given expectations for at least three interest rate hikes by the US Federal Reserve.
Last year, the ringgit weakened 4.3 per cent against the dollar. The fluctuating currency prompted Malaysia's central bank to introduce measures to stop offshore trading of it.
As a result, a flood of money left Malaysian bonds as foreigners, who own US$47 billion of them, were unable to hedge their risks in onshore markets because of a lack of liquidity.
The ringgit hit a near 19-year low of 4.496 on Jan 4, though so far in 2017 it was strengthened 1.5 per cent against the dollar.
The Malaysian central bank "does not have a target for what level it wants the ringgit currency to be at," Governor Muhammad Ibrahim said on Thursday.
The ringgit is more stable following measures BNM introduced in December, Muhammad said, adding that he expects to see more dollars available in the domestic market in coming months in the wake of those measures.
In December, BNM said exporters could only retain up to 25 per cent of export proceeds in a foreign currency, while the remainder must be converted into ringgit.
In the first two months of 2017, about US$2 billion was converted, Muhammad said. He said the ringgit's volatility has lessened since the December decision.
The central bank is looking at measures to let smaller and medium enterprises hedge their exposure to foreign exchange volatility, he said.
BNM said it also looking at allowing businesses longer periods for hedging to manage exposure to ringgit volatility and manage rising cost of doing business, he said.