The exposure of Malaysia’s banking institutions to the collapse of US-based Silicon Valley Bank (SVB) is minimal and limited based on the authorities’ assessment, according to Deputy Finance Minister II Steven Sim Chee Keong.
The country’s banking system remains competitive and resilient for continuing its role as an effective financial intermediary, he said during the minister’s question time in the Dewan Rakyat on Wednesday (March 15).
He was replying to a query from Mohd Syahir Che Sulaiman (Perikatan Nasional-Bachok), who wanted to know the early mitigation measures taken by the Ministry of Finance (MOF), Bank Negara Malaysia (BNM) and the Securities Commission Malaysia to address effects of the SVB crisis on the country’s banking sector and capital markets.
“In terms of capital and liquidity regulations, Malaysia has tight regulations, and stress tests in the banking system are also conducted periodically to ensure the system’s preparedness.
“On the monetary policy stance, this falls under the jurisdiction of BNM, and the MOF is not involved on any decision on the policy as enshrined in the Central Bank of Malaysia Act 2009,” Sim explained.
Under the Act, according to Sim, BNM’s Monetary Policy Committee (MPC) has been conferred the responsibility to formulate the monetary policy autonomously to ensure price stability and sustainable economic growth.
Sim said the aforementioned assessment was not made only based on the US Federal Reserve’s action, but more towards the domestic impact.
Earlier, Azli Yusof (Pakatan Harapan-Shah Alam) asked regarding the MOF’s strategies in efforts to contain inflation, and ensure a conducive monetary and financial stability for national economic growth.
Sim said among the government’s main strategies to manage inflation is by providing consumption subsidies as well as price control on selected essential goods.
Through that move, he said, the country’s inflation, which stood at 3.3% in 2022, is expected to remain manageable this year.
He also said that based on the Department of Statistics Malaysia’s research in 2022, the country’s inflation could hit 10% if the government were to abolish all subsidies being enjoyed by the people.
“In Budget 2023, the government has allocated RM64 billion to fund the various subsidies, assistance and incentives for the people,” he noted.
On monetary policy, he said the MPC, in its latest meeting on March 8-9, decided to maintain the overnight policy rate (OPR) at 2.75%, the rate kept during its first meeting of the year on Jan 18-19.
The decision to pause an OPR hike would allow it to assess the impact of the cumulative 100-basis-point OPR adjustments last year on the country’s inflation and economic prospects, given the lag effects of monetary policy on the economy from the four consecutive OPR hikes.
“This will allow the MPC to gain a clearer picture of the impact of the higher OPR on reducing demand pressure related to changes in household and business behaviours, which usually would take a while,” he added.
