Economists, markets give thumbs up for Malaysia's new central bank chief

Economists, markets give thumbs up for Malaysia's new central bank chief

PETALING JAYA - The appointment of the deputy governor of Bank Negara Datuk Muhammad Ibrahim as the successor of outgoing governor Tan Sri Dr Zeti Akhtar Aziz has been greeted well by experts in the banking and finance fraternity.

According to economists and analysts, the appointment of Muhammad is a positive development as it helps alleviate a lot of market uncertainties about Malaysia's monetary policy direction.

They note that Muhammad, with his three decades of experience with Bank Negara, is regarded as one who is not only familiar with the central bank's operations, but also one that has been properly trained to succeed Zeti. Hence, he is largely seen as the rightful next-in-line to ensure the continuity of the policies implemented by Bank Negara, they explain.

"Giving the governor post to Muhammad reflects continuity in Bank Negara, and this will help put to rest a lot of uncertainties in the market," independent economist Lee Heng Guei told StarBiz.

"He is seen as the ideal candidate to carry on the good work of Zeti and maintain the highest integrity of Malaysia's central bank," he said.

The appointment of Muhammad as the new governor of Bank Negara, effective May 1, was announced by the Prime Minister's Office yesterday. Taking over from Zeti, who will be retiring on April 30, his term will last for the next five years.

"Having a 'homegrown candidate' to take over the job reflects good succession planning in Bank Negara," AllianceDBS Research chief economist Manokaran Mottain said.

"Policy-wise, the continuity of Zeti's legacy will not be doubted, so the market will certainly appreciate this change," he added.

On that note, Manokaran said, the ringgit should remain firm.

The Malaysian currency led regional gains yesterday, appreciating 0.28 per cent against the US dollar to 3.915 due in part to higher oil prices, as well as the appointment of Muhammad as Zeti's successor.

"That the ringgit appreciated by as much as 0.03 point (in mid-day trade) against the US dollar within minutes of the announcement reflects the market's endorsement of the choice of successor," Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank in Singapore, said.

According to Nizam, the appointment of a sitting deputy governor as Zeti's successor had allayed earlier fears that a political appointee would be parachuted into Bank Negara to head Malaysia's central bank.

"The appointment of an internal candidate will lead to market assumption that Bank Negara will continue with the policies implemented by Zeti to anchor financial stability," he explained.

Aberdeen Islamic Asset Management Sdn Bhd CEO Gerald Ambrose concurred, saying: "We welcome the appointment of an internal candidate, who not only has considerable experience in Bank Negara, but is also seen by the investing community as someone who is 'independent'."

Muhammad has served in Bank Negara since 1984. He was appointed to the post of deputy governor in 2010. His role in the central bank encompasses banking and insurance, payment systems and financial markets.

Muhammad is also a member of Bank Negara's monetary policy committee (MPC), which decides on the interest rate direction, and the financial stability committee.

"As deputy governor and a member of the MPC under Zeti, he is the most qualified candidate and will require a shorter transition period than any of the other candidates," Nomura Research said in its report.

"While we will closely watch Muhammad for any statements or comments that reveal his policy biases, we believe he is unlikely to dramatically alter the direction of monetary policy," the international investment bank added.

Muhammad will chair his first policy meeting on May 19.

He will make his first public appearance on May 13, when Bank Negara is scheduled to announce the first-quarter gross domestic growth numbers.

Economists said the immediate challenge for Muhammad would be to ensure Malaysia's economy remains in a sustainable growth path amid a highly complex, and uncertain, global environment.

He would also be expected to address various socio-economic issues of concern such as the high household debt and housing affordability in Malaysia.

Despite the rise of the ringgit and recovery in the bond market yesterday, Malaysia's equity market closed slightly weaker in tandem with the regional performance.

The benchmark FTSE Bursa Malaysia KL Composite Index shed a marginal 0.16 points to close at 1,692.34 points.

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