Malaysia’s central-bank governor knows her own mind

Feb 4th 2012 | KUALA LUMPUR

MALAYSIA’S central bank, Bank Negara Malaysia (BNM), is the least predictable in the region, according to Robert Prior-Wandesforde of Credit Suisse. Its rate-setting decisions surprise analysts 26% of the time. That is not because it is erratic or antsy. Far from it. In the past seven years it has changed its policy rate only ten times, never cutting it below 2% or raising it above 3.5%. On January 31st it sat on its hands again.

This serenity is overseen by Zeti Akhtar Aziz, the bank’s governor since 2000. She is not bothered by Mr Prior-Wandesforde’s finding. Predictability is prized by the advocates of inflation-targeting, who believe central banks can mould people’s expectations of prices. But the BNM never embraced inflation-targeting, even when it was fashionable.

The bank surprised analysts by not raising rates in mid-2008, when the removal of fuel subsidies contributed to inflation of over 8%. “We were condemned by everyone, everyone,” Ms Zeti says. The bank then caught analysts out again by raising rates in March 2010, when the global financial crisis was still fresh. Both decisions proved prescient.

That crisis was not Ms Zeti’s first. She served as acting head of BNM for a brief but crucial period in 1998, after her boss resigned over the capital controls Malaysia imposed in response to the Asian financial crisis. She has defended the controls as a pragmatic response to Malaysia’s unique predicament, including the haemorrhage of ringgit (Malaysia’s currency) to a vibrant offshore market in Singapore. This week the bank liberalised its foreign-exchange rules, allowing Malaysians to buy and sell one foreign currency for another. But the ringgit still cannot be exchanged for another currency for investment purposes.

Ms Zeti says she believes in the free market, but not self-regulation. Like the Reserve Bank of India, BNM prides itself on keeping its banks in line. Its supervision reports rank each bank’s safety and efficiency against its peers. It discusses any lapses with the offending bank’s entire board, so that its directors know the right questions to ask its managers. These meetings are usually hosted by the deputy governor. But “if it’s a very bad report, I might chair it,” she says with a smile. The better the central bank does its job, the fewer meetings she has to attend. At BNM, less is often more.

Sumber : http://www.economist.com/node/21546008