BNM Annual Report 2010 & Financial Stability and Payment - - PowerPoint PPT Presentation

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by Dato' Muhammad bin Ibrahim Deputy Governor 23 March 2011

BNM Annual Report 2010 & Financial Stability and Payment Systems Report 2010

Briefing to Analysts & Fund Managers

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Briefing to cover:

• Economic and financial developments in 2010
• Prospects for 2011
• Policy Direction

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Malaysian economy expanded strongly by 7.2% in 2010

• Growth driven mainly by robust

domestic demand and primarily by private sector activity

• Public sector continued to play a

crucial role in supporting the domestic economy in 2010

• External demand, which

rebounded strongly in the first half of the year, moderated in the second half-year in tandem with the moderation in global trade

Annual change (%) 2009 2010p Domestic demand

• 0.5

6.3 Private consumption 0.7 6.6 Public consumption 3.1 0.1 Gross fixed capital formation Private investment Public investment

• 5.6
• 17.2

8.0 9.4 13.8 5.5 Net exports 5.0

• 24.2

Exports of G&S

• 10.4

9.8 Imports of G&S

• 12.3

14.7 Real GDP

• 1.7

7.2

Source: Department of Statistics, Malaysia

p preliminary

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Strong growth in all sectors, in line with the robust domestic demand and rebound in exports

Annual change (%) 2009 2010p Agriculture 0.4 1.7 Mining

• 3.8

0.2 Manufacturing

• 9.4

11.4 Construction 5.8 5.2 Services 2.6 6.8 Real GDP

• 1.7

7.2

Source: Department of Statistics, Malaysia

p preliminary

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2009 2010p RM billion Current Account 112.1 90.5 % of GNI 17.5 12.2 Goods 141.7 136.6 Services 4.7 0.9 Income

• 14.6
• 25.2

Capital Account

• 0.2
• 0.2

Financial Account

• 80.2
• 21.9

Direct Investment

• 22.9
• 15.0

In Malaysia 5.0 27.6 Abroad

• 27.9
• 42.6

Portfolio Investment

• 1.7

44.9 Financial Derivatives 2.5

• 0.8

Other Investment

• 58.1
• 51.1

E & O

• 17.9
• 71.1
• Rev. Gain (+)/Loss (-)

10.7

• 32.6

Overall Balance 13.8

• 2.6

Reserves (USD billion equivalent) 331.3 96.7 328.6 106.5

… negligible e/ estimate

Overall balance of payments remained strong in 2010

• Current account surplus narrowed

to 12.2% of GNI

• Financial account recorded

smaller net outflow due to higher portfolio and FDI inflows

• Reserves remained high at

USD110.4 billion at 15 March 2011

p preliminary

Source: Department of Statistics, Malaysia

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Higher foreign direct investment and direct investment abroad in 2010

• Higher FDI inflows
• Improved global and

domestic economic conditions

• Better corporate earnings
• 5

5 15 25 35 45 55 2008 2009 2010p

RM billion

• Direct investment abroad

(DIA) was also higher

• Malaysian companies

continued to tap profitable

• pportunities in other

regions

• Outflows into services, oil

and gas and manufacturing

… negligible e/ estimate Source: Department of Statistics, Malaysia

p preliminary

Net FDI Net DIA

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The rise of economic integration in East Asia has benefited Malaysia through trade and investment channels

Others 33% Indonesia 15% Singapore 18% Euro Area 6% United Kingdom 5% Australia 13% Asia 43% 10 20 30 40 50 60 East Asia Advanced economies Rest of the World %

1980 2000 2010

Almost half of investment abroad by Malaysian companies is in Asia East Asia is now Malaysia’s main export market

Malaysia’s Gross Exports: Composition of Major Export Markets

Source: BNM Annual Report 2010, White Box: Rise of Economic Integration in East Asia: The Malaysian Perspective

Other Asian countries, 13.5% Asian NIEs, 3.1% Cumulative Net DIA Flows by Sector 2008 – 2010 (RM120.8 billion)

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External debt remained low

• External debt declined to

RM226.3 billion (equivalent to 30.2% of GNI)

• Lower medium- and long-

term debt due to:

• revaluation gains

following appreciation of ringgit and;

• net repayment position of

the private sector

• Short-term debt increased

but remains manageable

end-Dec 2009 end-Dec 2010 RM billion Total External Debt 233.1 226.3 (USD bn equiv.) 67.4 72.6 Medium- and long-term 155.4 146.9 Short-term 77.8 79.4 % External Debt/GNI 35.1 30.2 Short-Term Debt /Reserves 23.5 24.2

… negligible e/ estimate Source: Ministry of Finance, Malaysia and Bank Negara Malaysia

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Labour market conditions improved in 2010 following strong gains in employment

239 179 44 153 3.2 3.7 3.3 3.2 50 100 150 200 250 300 2007 2008 2009 2010e 1 2 3 4

Net job creation Unemployment rate (RHS)

• No. of jobs ('000)

% of labour force

Source: Economic Planning Unit and Ministry of Human Resources

Higher net job creation & lower unemployment rate in 2010 While retrenchments declined significantly

5 10 15 20 25 30 2007 2008 2009 2010 Total retrenchments Mfg Non-mfg

Person (‘000)

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Inflation was modest in 2010

Contribution to Inflation

• 2
• 1

1 2

All Items Food & non-alco bev Transport Housing, water, elec, gas

• Misc. goods & services

Alco bev & tobacco Recreation serv & culture Restaurants & hotels Education Furnishings & household eq. Health Communication Clothing & footwear

percentage points 2009 2010

• Inflation edged to 1.7% in 2010 (2009: 0.6%), reflecting increases in the food and transport

Malaysia CPI, %

• 15
• 10
• 5

5 10 15 20 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10

Annual growth, % Headline inflation Core inflation Supply- related inflation

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Financing conditions expected to remain favourable

Net financing growth sustained…

3 6 9 12 15 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10

Annual change (%)

Loan growth: 12.7% Net financing growth: 11.3%

Total Financing 30 40 50 60 70 80 90 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Businesses Households Loans Applications by Businesses and Households

RM billion

2010 2009

…supported by robust demand for loans from businesses and households

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Domestic equity market had sustained growth in line with regional trends

KLCI and Bursa Malaysia sectoral indices

80 100 120 140 160 180 200 220 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 Index (Jan 2009=100)

Finance Industrial KLCI Plantation Construction Performance of Major Indices (% growth)

87.0 63.2 63.0 49.7 45.2 23.5 64.5 78.3 22.1 52.0 19.0 46.1 40.6 37.6 21.9 19.3 12.8 10.1 9.6 9.0 5.3

• 3.0
• 20

20 40 60 80 100 Indonesia Thailand Philippines Korea Msia US Singapore Taiwan UK HK Japan

%

2010 2009

13

• 20
• 15
• 10
• 5

5 10 15 20

AUD JPY THB SGD PHP IDR CNY KRW USD GBP EUR

2010 2009

• 21.7%

20.6%

Ringgit performance driven by external and domestic developments

• MYR appreciated against most currencies in 2010 following a relatively

subdued performance in 2009

• Despite volatile capital flows, ringgit adjustments have been orderly

MYR performance against selected currencies in 2009 and 2010

% MYR appreciation % MYR depreciation

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The impact of ringgit appreciation on the economy has been manageable

0% 5% 10% 15% 20% 25% 30% 35% 40% Favourable Neutral Unfavourable 0% 5% 10% 15% 20% 25% 30% 35% 40% Favourable Neutral Unfavourable

Quarterly sectoral survey* 4Q 2010 Impact of ringgit appreciation on profit margins

Impact on profit margin thus far Impact on profit margin if ringgit appreciates further

* Based on a survey of 177 companies, of which 109 are manufacturing, 43 non-financial services and 25 Constructions

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Measures undertaken to allow more efficient management of foreign financial transactions

To allow more efficient management of foreign transactions, several measures have been undertaken, including:

• Allow settlements in local currencies
• Facilitate hedging activities by residents
• Allow unlimited holding of foreign currency accounts
• Allow settlement of transactions in foreign currency by exporters and

importers

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Prospects for 2011

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Global growth projection for 2011

Challenge for global economy going into 2011 is sustaining growth with job creation

Source: National authorities, IMF World Economic Outlook, January 2011 Update

2009 2010 2011f Annual change (%)

World GDP

• 0.6

5.0 4.4 World Trade

• 10.7

12.0 7.1

US

• 2.6

2.8 3.0 Euro area

• 4.1

1.7 1.5 Japan

• 6.3

3.9 1.6 Developing Asia 1/ 7.0 9.3 8.4 China 9.2 10.3 9.6 ASEAN-5 2/ 1.7 6.7 5.5

Note: Forecasts for 2011 are IMF’s projections 1/ IMF: Asia ex-NIEs 2/ IMF: Indonesia, Malaysia, Philippines, Thailand and Vietnam

• Significant improvement in 2010
• Continued recovery in advanced

economies although growth remains slow

• Strong growth in emerging economies,

particularly in Asia underpinned by domestic demand and recovery in world trade

• More recently, rising commodity and

energy prices are leading to higher global inflation

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Global growth mainly from EMEs in 2011

• 4
• 3
• 2
• 1

1 2 3 4 5 6 7 8 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f

• 80
• 60
• 40
• 20

20 40 60 80 100 120 140 160 Advanced economies EM: Africa EM: Asia EM: Eastern Europe EM: Middle East EM: Latin America EM: CIS EME contribution to global growth (RHS) Contribution to world growth, p.p. share of world growth. %

Source: IMF World Economic Outlook

Note: CIS is the Commonwealth of Independent States, formerly Soviet republics

While accounting for 47% of global economy, emerging economies expected to contribute more than 70% of global growth

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3 5 7 9 11 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 1 2 3 4 5 6 US Euro area UK Japan (RHS) % %

• 14
• 12
• 10
• 8
• 6
• 4
• 2

2 2001 2003 2005 2007 2009

• 12
• 10
• 8
• 6
• 4
• 2

% of GDP % of GDP

Advanced economies still need to address structural problems

• 10
• 5

5 10 15 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

• 4
• 3
• 2
• 1

1 2 3 4 5 6

%

%

Restrained credit conditions High unemployment rate High fiscal deficit

1 3 2

Source: National authorities, Haver, IMF

Unemployment rate (%) Fiscal deficit, % of GDP Credit to private sector, growth

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1 2 3 4 5 6 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Index 1 2 3 4 5 6 7 Index Korea Singapore Hong Kong China

• C. Taipei (RHS)

Thailand (RHS)

• 30
• 20
• 10

10 20 30 40 50 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10

• 15
• 10
• 5

5 10 15 20 25

Regional economies supported by resilient domestic demand

• 10

10 20 30 40 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

• 8
• 4

4 8 12 16 yoy,%

Continued access to credit Rising retail sales Unemployment trending down

1 3 2

Source: National authorities, Haver

Unemployment rate Lending growth *

Note: * Refers to loans as reported in banks’ balance sheet, except for Indonesia which refers to loans outstanding

Indonesia

yoy,% Retail sales

yoy,% yoy,%

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• 3
• 2
• 1

1 2 3 4 5 6 7 8 2003 2004 2005 2006 2007 2008 2009 2010 2011

Rising commodity prices have increased the risk to higher global inflation

50 100 150 200 250 300 350 400 450 500 2003 2004 2005 2006 2007 2008 2009 2010 2011

Metals Crude oil Food US Euro UK East Asia-9 …driving up inflation in most economies

Index (Jan ’03 = 100) Yoy (%)

Rising commodity prices amid supply disruptions and geopolitical tensions…

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Different degrees of monetary policy response

2 4 6 8 10 2008 2009 2010 2011 PR China Thailand Indonesia Korea % Malaysia Ch Taipei 1 2 3 4 5 6 2008 2009 2010 2011 %

US Euro area UK Japan

…while most regional economies have started to normalise

• r tighten since 2010

Some advanced economies are expected to begin to normalise rates this year…

Key interest rates, % Key interest rates, %

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Global shifts in liquidity: Volatile capital flows…

Large capital inflows driven by growth differentials and the search for yield…

4 8 12 16 20

• C. Taipei

Thailand India Malaysia Singapore Philippines Korea Indonesia PR China 2009 2010 Total flows into equity and bond markets USD billion

Source: EFPR

50 100 150 200 Hong Kong P.R China Malaysia Singapore Korea

• C. Taipei

Philippines Thailand Indonesia

Stock market Property prices

% change from end-2008 till end-2010

Stock market and property price performance

…driving stock and property prices higher

1

1/ till 3Q 10 for property prices

Source: Haver and Bloomberg

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…prompting measures to manage these flows

Measures introduced in the region to manage capital flows

Hong Kong SAR & Singapore Philippines Indonesia Thailand Chinese Taipei Korea PR China

Limit capital inflows – capital account measures Prudential & liquidity measures (macroprudential) Greater flexibility for capital

• utflows (liberalisation)

Administrative measures (real estate)

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The Malaysian economy is projected to grow by 5% − 6% in 2011

• 2
• 1

1 2 3 4 5 6 7 8 2005 2006 2007 2008 2009 2010p 2011f Annual change (%)

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

5.0% 6.0% 7.2%

p preliminary f forecast

• Slower growth in 1H 2011

– High base in 1H 2010, particularly for exports and investment – Lower demand for electronic exports

• Growth is expected to improve in 2H

– Stronger expansion of domestic demand, particularly, private consumption and investment – Higher exports

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Strong growth in domestic demand to be driven by private sector activity

2010p 2011f 2010p 2011f Annual change (%) Contribution to growth (p.p) Domestic demand 6.3 6.7 5.6 6.0 Private sector 7.8 7.4 4.9 4.7 Consumption 6.6 6.9 3.6 3.7 Investment 13.8 9.7 1.4 1.0 Public sector 2.5 5.1 0.6 1.3 Consumption 0.1 7.2 0.0 1.0 Investment 5.5 2.7 0.6 0.3 Net exports

• 24.2

2.3

• 3.3

0.2 Exports of G&S 9.8 2.7 10.5 3.0 Imports of G&S 14.7 2.8 13.8 2.8 Real GDP 7.2 5.0~6.0 7.2 5.0~6.0

Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary f forecast

• Private domestic

demand to be the main growth driver

• Strong private

consumption

• Rising investment

activity

• Public sector to remain

supportive of growth

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Strong expansion in private consumption

Stronger expansion in consumer spending supported by: – Favourable labour market conditions – Rising disposable incomes – Sustained consumer confidence – Continued access to credit

p preliminary f forecast Source: Department of Statistics, Malaysia and Bank Negara Malaysia

Real private consumption

9.1 6.8 8.5 0.7 6.9 10.5 6.6 2 4 6 8 10 12 2005 2006 2007 2008 2009 2010p 2011f Annual change (%)

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Household expenditure on discretionary items has increased in recent years

2 4 6 8 10 12 14

Miscellaneous goods & services Restaurants & hotels Communication Recreation & culture

% of total household consumption 2005-09 2000-04

• The changing patterns of

household spending reflected mainly growing affluence, supported by

• Steady rise in disposable

income

• Accumulation of wealth
• Other key factors
• Favourable demographic (i.e.

young and large working-age population)

• Increased financial deepening

and inclusion

• Technological developments

Source: Department of Statistics, Malaysia

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Labour market conditions expected to remain favourable in 2011

3.2 3.5 3.3 3.2 3.3 3.7 3.2 1 2 3 4 2005 2006 2007 2008 2009 2010e 2011f 1 2 3 4 5

Annual change (%) Unemployment rate (% of labour force)

Source: Economic Planning Unit

• Unemployment rate to remain

stable at 3.2% in 2011

• supported mainly by growth

in domestic-oriented sectors

e Estimate f Forecast

Employment (RHS) Labour force (RHS) Unemployment rate

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Strong performance in private investment

Annual change (%) 2009 2010p 2011f Real private investment

• 17.2

13.8 9.7

• Increased capital spending in all

economic sectors

• Key sectors: services,

manufacturing and mining

• Factors supporting private

investment:

• Expansion of new growth areas
• Strengthening domestic demand
• Implementation of Government

initiatives

• Sustained business confidence

Nominal Private Investment 10 20 30 40 50 60 70 80 90 2006 2007 2008 2009 2010p 2011f RM billion Agriculture Mining Manufacturing Construction Services

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

62.1 76.6 79.8 65.2 76.9 86.9

p

preliminary f forecast

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FDI to increase further in 2011

• Higher net inflows of FDI in 2011
• Better corporate earnings
• Rising business confidence
• Further improvement in global

FDI flows

• Liberalisation
• Implementation of Government

ETP projects

• Inflows channeled mainly into the

manufacturing, services, and oil and gas sectors

Net FDI inflows into Malaysia

29.5 24.1 5.0 27.6 32.4 10 20 30 40 50 2007 2008 2009 2010p 2011f RM billion

p preliminary f forecast Source: Department of Statistics, Malaysia and Bank Negara Malaysia

32

Positive trends in private investment are expected to continue moving forward

Source: Department of Statistics, Malaysia, Bank Negara Malaysia

Two distinct changes can be observed in the recent decade

• Increasing diversity in the investment spending

across the various economic sectors

• More capital expenditure channelled into

higher value-added, technologically-intensive projects across the different sectors of the economy

• Manufacturing: Renewable energy, high-

end electronic products, machinery and equipment, medical devices industry

• Services: Shared services and
• utsourcing, communication and transport

& storage infrastructure

Nominal Private Investment

0% 20% 40% 60% 80% 100% 2000 2010p/ Agriculture Mining Manufacturing Construction Services 25.5 1.1 64 3.2 6.1 30.7 % share 3.6 54.7 6.6 4.4

Sectoral distribution of private investment has become more diversified

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Public sector will remain supportive of domestic economic activity

2010p 2011f Annual change (%) Public sector 2.5 5.1 Consumption 0.1 7.2 Investment 5.5 2.7 Contribution to growth (p.p) Public sector 0.6 1.3

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

p

preliminary f forecast

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External trade to expand in 2011

• Exports

– Moderation from the high base

• f 2010, particularly in

manufactured exports – But, strong support from commodity exports due to higher prices and sustained regional demand

• Imports

– Modest growth in intermediate imports – Growth in capital and consumption imports reflects strong domestic demand

Annual change (%) 2010p 2011f Gross exports 15.6 5.4 Manufactured 13.0 4.4 E&E 9.9 3.7 Non-E&E 17.3 5.2 Commodities 26.9 10.1 Agriculture 30.8 12.4 Minerals 23.4 8.0 Gross Imports 21.7 5.7 Capital 16.2 10.3 Intermediate 22.1 5.3 Consumption 10.1 8.4 Trade balance (RM bn) 110.2 114.6

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

p

preliminary f forecast

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Current account to remain in surplus

• Larger trade surplus supported

by higher commodity exports

• Services surplus, benefiting

from higher tourism receipts

• Lower income deficit
• Higher earnings by

Malaysian companies investing abroad

• Lower repatriation of

profits and dividends by MNCs

Widening current account surplus

• 50
• 20

10 40 70 100 130 160 190 220 2007 2008 2009 2010p 2011f RMb

• 5

5 10 15 20 % GNI Goods Services Income Current transfers Current Account, % GNI (RHS) 12.5% 12.2% RM90.5b RM100.7b

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

p

preliminary f forecast

36 Annual change (%) 2010p 2011f Agriculture 1.7 3.4 Mining 0.2 2.0 Manufacturing 11.4 5.7 Construction 5.2 5.4 Services 6.8 5.9 Real GDP 7.2 5.0 ~ 6.0

Broad-based growth across all sectors

• Supported mainly by

the continued growth of domestic economic activity

• Trade-related services

and export-oriented manufacturing industries to record slower growth in line with the expected moderation in external demand

Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary f forecast

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Headline inflation to range between 2.5 – 3.5% in 2011

Inflation Forecast 2011

1 2 3 4 5 6 2005 2006 2007 2008 2009 2010 2011/f

Annual growth (%)

2.5 – 3.5%

• Driven mainly by higher global commodity and energy prices, inflation is expected to

increase in 2011.

• This trend is similar to other regional economies

Regional Countries Headline Inflation Forecast

3.8% 3.3% 1.7% 2.8% 3.0-5.0% 3.0-5.0% 2.5-3.5% 3.0-4.0% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Singapore Malaysia Thailand Phillippines Annual growth (%) 2010 2011 forecast Note: Inflation forecast refer to the central bank official forecast

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Malaysia has adopted a comprehensive approach to manage inflationary pressures from commodity prices

In addition to macroeconomic policies, other measures taken are

• Increasing food production and its distributional efficiency
• Promoting greater energy efficiency by households and industry
• A more gradual subsidy rationalisation programme
• Providing income support to targeted groups

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Monetary policy in 2011 will remain supportive of growth, while managing risks to inflation

2.75% 2.50% 2.0% 3.5% 2.25%

1.5 2.0 2.5 3.0 3.5 4.0

Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 % Overnight Policy Rate (OPR)

• Given improved economic outlook, the

OPR was adjusted in 2010 to – Normalise monetary conditions – Prevent the risk of financial imbalances

• For 2011, focus of monetary policy is to

manage the risk of a more modest growth and higher inflation – Monetary policy has the flexibility to remain accommodative – The degree of accommodation may however, need to be reviewed to ensure sustainable economic growth

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Two-way capital flows expected to continue

• In 2010, the capital inflows to Malaysia went into both the bond and equity markets
• Strong economic fundamentals and positive prospects will continue to attract portfolio inflows
• But this is likely to be interrupted by intermittent reversals driven by external events
• 15
• 10
• 5

5 10 15 20 25

Q1 Q2 Q3 2009 Q4 Q1 Q2 Q3 2010 Q4

Net Portfolio Investment into Malaysia

RM billion Source: Department of Statistics Malaysia

Cumulative net equity fund flows (since Jan 07)

• 40

40 80 120 160 200

Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 USD billion

• 0.5

0.0 0.5 1.0 1.5 2.0 2.5

USD billion

All Emerging Markets (LHS) Malaysia (RHS)

07

Source: Emerging Portfolio Fund Research Global

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Large inflows have also led to increases in international reserves

Net International Reserves (Jan’08 - Mar’11)

110.4 130.5

80 90 100 110 120 130 140 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 USD bn

Deleveraging activities by international investors Resumption of capital inflows

Source: BNM

• Large inflows have led to

increases in international reserves – Since the resurgence of capital inflows in 2H 2009, net international reserves at USD110.4 bn in 15 March-11. – During previous episode in Aug- 08: USD130.5 bn

42

Capital flows currently well intermediated

• More diversified and developed financial system has helped to intermediate

the capital flows

• Managed float regime has the necessary flexibility for the exchange rate to

adjust to changing conditions

• Wider range of instruments for effective monetary operations
• Rigorous surveillance and information systems
• Stronger fundamentals and a healthy level of international reserves
• Closer cooperation and communication among central banks

Large inflows have increased liquidity in the domestic financial system but, this has been well managed