Malaysia’s central bank Governor Tan Sri Dr Zeti Akhtar Aziz warned that Greece exiting the euro would have “unimaginable” consequences for Europe and that she expects a solution will be reached to prevent a departure.
“The consequences for that to happen I believe will be unimaginable for Europe, therefore a solution has to be found to address the situation,” Zeti, 64, said in an interview with Bloomberg Television in Istanbul yesterday. “I believe that such a solution can be found.”
Bank Negara Malaysia kept the benchmark overnight policy rate unchanged at 3 percent for a sixth straight meeting on May 11. The country joined Indonesia and South Korea in holding borrowing costs steady this month to bolster growth as Europe’s sovereign-debt crisis threatens to escalate.
Measures to prevent a Greek departure from the common currency should also be accompanied by a plan to boost growth in the region, Zeti said. “Structural adjustments” being imposed in Greece and on other economies such as fiscal austerity need to be done gradually, she said.
“The worst-case scenario is what we saw in Asia when one economy collapses, the market usually goes on to focus on the next one, and there will be contagion that will affect different countries probably that don’t deserve those kinds of consequences,” Zeti said. “This is what would be described as unimaginable.”
Growth prospects for Asian nations may falter as Greece’s failure to form a government could reverse progress made in resolving Europe’s debt turmoil, with a China slowdown and an uneven U.S. recovery adding to risks. Inflation is easing in the export-dependent Southeast Asian nation, giving the central bank scope to refrain from raising rates as Prime Minister Datuk Seri Najib Razak prepares for elections.
The government is increasing spending on roads and railways to sustain growth of as much as 5 percent this year, ahead of a nationwide election that must be held by early 2013. Najib has also raised civil-servant salaries and pensions, waived school fees and boosted handouts for the poor.
The US$238 billion economy expanded 5.2 percent in the fourth quarter from a year earlier, slowing from a 5.8 percent pace in the previous three months. Bank Negara is due to release first- quarter gross domestic product data on May 23.
Signs of weakening demand for Asian goods have emerged, with Malaysia, Thailand and the Philippines all reporting export declines. Malaysia’s overseas sales unexpectedly fell in March as manufacturers such as Unisem (M) Bhd and Malaysian Pacific Industries Bhd shipped fewer electrical and electronics products, bolstering the case for the central bank to hold off from interest-rate increases.
The central bank predicted in March inflation may slow to a range of 2.5 percent to 3 percent this year from 3.2 percent in 2011. Price gains are easing and growth is within expectations, Zeti said May 2, adding that policy makers shouldn’t rush to tighten their monetary stance. -- Bloomberg
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