KUALA LUMPUR: Asian countries facing increased market volatility need the option of using capital controls to pre-empt financial crises, according to Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus.
In an interview with Financial Times, she said: “Countries in this region should be allowed to use capital flow regimen policies as a legitimate policy tool that can be deployed in a pre-emptive manner to deal with potential risk to financial market stability.”
“I think there is still a lot of stigma in the use of capital flow [management],” she said in the interview on the sidelines of the IMF and World Bank annual meetings in Bali.
In a seminar, Nor Shamsiah said Malaysia had used some capital flow measures in 2016, when the central bank clamped down on ringgit trading in the offshore non-deliverable forwards market to stem the currency’s fall amid an emerging market sell-off following the election of Donald Trump as US president.
Meanwhile, AmBank Research chief economist Anthony Dass said the option to use capital control at the moment could be fairly premature.
“However, should the global volatility remains strong that results in huge capital outflow from this region added with domestic pressure especially with the risk of rising fiscal deficit/GDP and the challenge to lower the public debt/GDP should result into weakening pressure on the ringgit.
“If the depreciation turns out to be drastic, it will further add pressure on the country to finance its US$ denominated debt, likewise for other EM countries with high US$ denominated debt. Such pressure may potentially provide justification for capital control to come into the picture,” he said.