KUALA LUMPUR, Aug 28 (Bernama) -- Bank Negara Malaysia (BNM) Governor Datuk Nor Shamsiah Mohd Yunus said the bank has had encouraging discussions with global bond index provider, FTSE Russell, on the possibilities of Malaysian bonds to remain in the World Government Bond Index (WGBI).
In the meantime, BNM is continuing its long-standing efforts to broaden and deepen the Malaysian onshore market, including providing increased flexibility for dynamic hedging programme.
These have further improved market accessibility and liquidity in the current financial market landscape.
"We have increased our engagements with investors. We have had discussions with FTSE Russell when they were in town. They were very appreciative that we are trying to deepen our onshore market," she said in an exclusive interview with Bernama recently.
"FTSE Russell has been going around to talk to investors and the investors have been telling them that they see access to the onshore market have been made easier by various measures that have been introduced," she added.
As a result of the measures, including allowing investors to undertake hedging activities, today’s onshore market turnover has improved tremendously from its early days.
The average daily onshore foreign exchange volume has increased to between US$12 billion (US$1=RM4.20) and US$14 billion year-to-date compared with only US$8 billion in 2016.
FTSE Russell offers a comprehensive, modular range of indexes, designed to measure the performance of fixed income markets globally, including the WGBI.
In April 2019, it was reported that FTSE Russell had placed Malaysia under its watch list for six months with another cycle of review slated in September.
This is following its inaugural fixed income country classification review.
"Being on the list doesn’t mean we will be removed. It means they will step up engagement with the authorities. Before this, the engagement was on an annual basis but now it will be more frequent," said Nor Shamsiah.
On fiscal sustainability, the governor said: "The Malaysian government is very much committed to fiscal consolidation as the fiscal deficit is expected to narrow from 3.7 per cent in 2018 to 3.4 per cent in 2019 and to continue on consolidation path going into 2020.
“This is a commitment to fiscal sustainability. The reduction of the fiscal deficit will then reduce the need to borrow.”
According to BNM data, total federal government debt as at the end of June 2019 was RM799.1 billion, of which domestic debt stood at RM609.1 billion and external debt at RM190 billion.
The country's economy has remained resilient despite the external headwinds with 4.9 per cent growth recorded in the second quarter of the year from 4.5 per cent in the first quarter.
However, asked if the country could afford a stimulus package if external sector turns to worse while remains committed to fiscal consolidation, Nor Shamsiah said: "Even within the fiscal consolidation path, there is a role of fiscal policy to prioritise projects and areas that can have high multiplier effects on the economy."
Besides spending, improving efficiency will also help generate growth and reduce cost, she pointed out.