KUALA LUMPUR, Oct 26 — Malaysia, as a small and open economy, needs to ensure that it is well-prepared and has the necessary buffers to face the changing global economic environment, said Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour.

"(In doing so), one important element (in this process) is the diversification of our economy, which provides a shield to help us absorb any challenges that arise,” he said during an interview with CNBC News Channel at the International Monetary Fund (IMF) annual meetings in Washington, DC, recently.

Abdul Rasheed was asked on the US Presidential election’s impact on Malaysia’s future growth.

He said the US presidential election is among the things that BNM is watching very closely, adding that things are still very fluid at the moment.

"Of course, when considering what Donald Trump has been saying about the three key areas — tariffs, immigration, and tax cuts — these policies are basically inflationary. If implemented, they could have negative implications for growth and and this could be inflationary.

"What we are seeing now is primarily rhetoric, and it depends on what actually translates into policy. For instance, in 2016, there was a lot of campaign rhetoric, but not everything goes into policy formulation and execution.

"The three areas I highlighted could have an implication (if executed), not just on Malaysia as a small and open economy, but also for global growth as a whole,” he said.

On China’s economic stimulus package, Abdul Rasheed said while Malaysia is positive on the announcement, the details of the package has not yet been announced.

"Hopefully, through the stimulus package, the republic could achieve a growth rate of around 5.0 per cent. If we look at the recent World Economic Outlook, it has been downgraded to 4.8 per cent. So, I believe this stimulus package could help bring it back to 5.0 per cent, but we are closely watching the details of China’s announcement.

"Another point I want to emphasise is the importance of diversification. In terms of our exports to China, they account for about 14 per cent...we are quite well diversified, with exports to the US making up 12 per cent, and 27 per cent go to the Asean economies. This shows that we are quite well diversified and not overly reliant on any single economy or country,” he said.

Meanwhile, the governor noted that Malaysia is quite well integrated into the global supply chain, leading to numerous opportunities for the region, particularly for Malaysia.

He explained that this is partly due to de-globalisation, which has reconfigured the global supply chain, prompting the region to strengthen its focus on areas where it has a comparative advantage.

"In Malaysia’s case, electrical and electronics (E&E) is one of our key strengths. We are exploring new opportunities within the E&E sector, particularly in high-value-added activities like artificial intelligence and advanced packaging, and others. This will create high-value jobs and foster strong domestic economic linkages,” he said.

When asked on Malaysia’s interest rate outlook, Abdul Rasheed said interest rate determination by the Monetary Policy Committee (MPC) will depend on the data and outlook for balance of risk, inflation and growth during the MPC meeting.

"They will depend on the data we gather, and we will assess it periodically as we meet to determine the appropriate rate. But, since we last increased the policy rate to 3.0 per cent, it remains supportive of growth at this time and is deemed appropriate.

"The outlook is quite challenging to predict, as it depends on global economic dynamics and domestic developments that could impact our inflation and growth projections moving forward,” he said.

Commenting on the US Federal Reserve’s (Fed) recent 50-basis point rate reduction and hikes, the governor noted that these moves certainly have a ripple effect on Malaysia’s economy.

"If you look at the ringgit’s performance over the last two years, it has depreciated quite excessively, primarily due to the interest rate differential between Malaysia and advanced economies, particularly the Fed.”

"Our policy rate is at 3.0 per cent, while the Fed rates are at 5.5 per cent. The recent 50-basis point cut is a positive development for us, as it reduces the interest rate differential between the US and Malaysia.

"This has been beneficial for Malaysia. However, there has been some correction recently due to positive economic indicators from the US, particularly regarding the resilience of the labour market, which has created uncertainty about the Fed’s next move,” he added. — Bernama