Zeti: Too early to know impact of fuel price hike

Friday June 13, 2008

KUALA LUMPUR: It is too early to see the impact of the recent fuel price increase on inflation and growth, says Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

The central bank would need to study carefully the impact as it was not just the slowing down of the external sector but also involved the effect of stimulus packages being put in place as well as recognising the nature of price increase due to rising costs, she said.

“We have to make a careful assessment whether this is passed on to consumers. When that happens, then you have the inflation when there is a generalised price increase,” Zeti told reporters after the launch of the International Centre for Education in Islamic Finance’s (Inceif) Masters programme in Islamic finance yesterday.

Currently, she said, there were only specified prices rising.

“It is too early to assess whether this is being translated and passed on and whether the producers have the capacity like what they had so far in absorbing part of the increased cost. Then, the consumers’ response, whether they will continue with very strong demand or whether we see some moderation.

“All this will be assessed very carefully in the months to come as we determine our monetary policy response,” she said.

Bank Negara’s interest rate policy would depend on the outlook on inflation and growth, she added.

On slipping into negative interest rate territory, Zeti said Malaysia had some negative real interest rates but as long as it was not fundamental, it would not damage consumer demand and the position of consumers.

Asked if the central bank would consider intervening in the currency market to avoid any instability, she said: “The underlying trend is not something that we try to influence and from time to time, you would see volatility. In fact many times, there will be increased volatility because of the great uncertainty that is occurring in the international financial system.” – Agencies