Zeti Says Malaysia Central Bank’s 1MDB Move Vital for Integrity – Bloomberg

Zeti Says Malaysia Central Bank’s 1MDB Move Vital for Integrity

Malaysia’s central bank had to take action against a debt-ridden state investment company to protect the integrity of the financial system, according to Governor Zeti Akhtar Aziz, who said an improvement in the country’s political situation would help the ringgit.

The attorney general’s office earlier this month dismissed the central bank’s second request for criminal proceedings against 1Malaysia Development Bhd. for breaching the Exchange Control Act. Bank Negara Malaysia revoked three permissions given to 1MDB for investments abroad totaling $1.83 billion, and instructed it to repatriate the amount.

“He has the right to make that assessment,” Zeti said, referring to the attorney general. “But for the central bank we believe it is very, very important to comply with our rules and regulations that we have in place. This is vital, it’s critical for the functioning of the financial system” and its integrity, she said.

While growth could ease to as little as 4.8 percent this year and the risk of a slowdown because of the global economy is bigger than the threat of inflation, Malaysia has a “high degree of resilience,” Zeti, 68, said in an interview in Lima, Peru on Sunday.

The central bank doesn’t see the risk of faster inflation after the first quarter of 2016 and interest rates at current levels are supportive of growth, Zeti said. Malaysia forecasts growth of 4.5 percent to 5.5 percent this year.

Malaysian policy makers have struggled to boost confidence in the economy and its finances since oil prices started slumping late last year and as allegations of financial irregularities at 1MDB hurt sentiment. Tensions in the Southeast Asian nation have also increased as Prime Minister Najib Razak battled accusations of impropriety over political donations that ended up in his private accounts.

“People are distracted now” because the country rarely has political developments of this nature, Zeti said. “Everyone wants these domestic issues to be resolved quickly, because as and when they are resolved, we expect the currency to recover even further,” after gains in recent days.

The debacle surrounding 1MDB has contributed to the ringgit performing the worst among major Asian currencies this year, while foreign investors have pulled more than $4 billion from Malaysian stocks in 2015. The central bank anticipated outflows would happen when Western counterparts reversed quantitative easing, Zeti said.
Political Funding

The Wall Street Journal reported in July that about $700 million may have moved through government agencies and companies linked to 1MDB before ending up in accounts bearing Najib’s name ahead of elections in 2013. The anti-corruption commission said the money was from donors in the Middle East, not 1MDB. Najib has denied any wrongdoing.

Zeti Says Malaysia Central Bank’s 1MDB Move Vital for Integrity
October 12, 2015 — Bloomberg


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