Muhammad bin Ibrahim: “State of the Industry Address” Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Asian Strategy &amp; Leadership Institute’s (ASLI) 21st Malaysian Banking Summit, Kula Lumpur, 25 May 2017. * * * Thank you for the opportunity to speak again at the ASLI Malaysian Banking Summit. Around this time last year, I recall delivering the keynote address at this Summit after assuming the office of the Governor. A year has passed, and it was indeed an eventful year. In the past year, we witnessed major forces that shaped the world. Some improbable, others familiar. Some transformative, others polarising. Some deep-seated, others fleeting. In short, it has been a year of contrasts. In more ways than one, our perception of reality is also changing dramatically. The human brain can now communicate directly with computers, from powering prosthetic limbs to flying drones. Months ago, both Uber and Airbus unveiled separate plans for flying cars. Additionally, just earlier this week, artificial intelligence surpassed the world’s best player in Go, believed to be the most complex strategy game, with more possibilities than atoms in the visible universe. On many levels, these developments contrast starkly with conventional wisdom and the traditional state of play in respective industries. Yet, they are also driving thought leadership and genuine innovation. This theme of contrasts will underpin my observations today on the economy and the banking industry.
In discharging this responsibility, policymakers must consider macro perspectives, be able to look further afield, evaluate risks, and take timely actions to manage these risks. The Global Financial Crisis provides a stark reminder that markets cannot be exclusively relied on to rein in excesses. Left to the market, there is always a tendency to overshoot. Market forces can at times deviate significantly from public interest. This is where policymakers step in to moderate these effects and steer markets back onto a sustainable path. This is infamously described as, central banks ‘taking away the punch bowl, just as the party gets going2’. One ‘party’ we saw developing was the imbalance in the foreign exchange market, more specifically in the ringgit non-deliverable forward (NDF) market. Measures taken by the Bank in December last year were aimed at further developing the onshore financial markets and limiting the influence of speculative pricing of the ringgit in the offshore market which had undermined the stability of the domestic foreign exchange market. Since the implementation of these measures, the exchange rate stabilised, with the 1-month implied volatility recording a lower average of 4.5%, against 9.9% before the measures were put in place. The average intraday movement recorded a daily average of 76 points while the bid-ask spread recorded an average of 25.0 basis points since end-February 2017. Of importance, the onshore foreign exchange market continues to record a healthy daily average volume of USD10 billion. Prior to the measures, the daily volume was around USD8 billion. The Malaysian bond market remains resilient.