Bank Negara: Low oil favourable to M’sia, will reduce pressure on inflation

KUALA LUMPUR: Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz says the current level of oil prices is favourable to Malaysia's economy, as it brings down the costs to businesses and consumers, and reduces the pressure on inflation.

"Consumers would have more funds for discretionary expenditure and increase consumption demand on other things, which will spur growth," she said.

"Therefore, we and the region would be able to remain on a sustainable growth path," she explained in response to a question from the floor on the potential impact of falling oil prices on Malaysia's economy during a special talk on the ASEAN Economic Community and Globalisation organised by the ASEAN Business Club (ABC) here yesterday.

Oil prices fell to a five-year low yesterday, with the Brent and West Texas Intermediate crude trading at about US$69.17 (RM237.47) and US$65.12 a barrel, respectively.

However, Zeti conceded that if oil prices were to fall below a certain "threshold", the country's economy would be impacted, as the Government's revenue and expenditure would be negatively affected. In addition, she said, the petroleum sector's investment in innovation and exploration would also be cut back.

"If that happens, supply will be contained when prices rise again due to the lack of those investments, leading to much higher prices," she said.

Zeti, however, did not specify what the minimum "threshold" level of oil prices was for Malaysia.

On the exchange rate, she said the weakening of the ringgit against the US dollar was only a temporary factor, adding that the current value of the ringgit was not reflective of the underlying fundamentals of Malaysia's economy.

"Our assessment is that fundamentals will prevail. Investments will come back into our region, so we should see better performing currencies (in the days ahead)," she said.

As at 5pm yesterday, the ringgit traded at 3.4340 against the US dollar - the weakest level since February 2010, according to data compiled by Bloomberg.

Meanwhile, she noted that the ASEAN Banking Integration Framework was now in its final stages of development.