KUALA LUMPUR: Malaysias gross domestic product (GDP) grew 4.2 per cent in the first quarter of 2016, its slowest growth since the third quarter of 2009, announced Bank Negara Malaysia Governor Muhammad Ibrahim on Friday (May 13).

The economy was dragged down by external shocks and cautious private spending, he added. However, this was still within its 4 to 4.5 per cent target growth, which is supported by measures to boost disposable income and improve private spending.

The new central bank governor Muhammad Ibrahim, who took over from former governor Dr Zeti Aktar Aziz earlier this month, said that the moderate growth was temporary, and was expected to improve in the second half of 2016 on the back of higher manufacturing and improved commodities production. 

Higher wages for civil servants and an increased new minimum wage are also expected to aid the improvement, authorities added.

According to the central bank governor, business sentiment has not been affected by issues surrounding state fund 1Malaysia Development Berhad (1MDB). This is despite 1MDBs recent debt defaults which have impacted the ringgit, making it Asias worst performing currency during the first quarter.

Muhammad also downplayed risks to the countrys sovereign rating.

There were a lot of factors that influenced the cautious spending, and it had nothing to do with the issues related to 1MDB, he said. (Its because of the) stability of our income and security of employment.

The central bank added that the current account surplus narrowed to 5 billion ringgit (US$1.24 billion) in the first three months of this year, lower than the 11.4 billion ringgit in the previous quarter.

Reserves are also strong at US$97 billion, enough to cover 1.2 times of external short term debts, he said.


Under Dr Zeti, the central bank had slapped 1MDB with a fine, which Muhammad said marks the end of its investigation into the state fund.

1MDB has until May 30 to pay the undisclosed fine set by Bank Negara. The state fund is still locked in a dispute with Abu Dhabis wealth fund International Petroleum Investment Company over billions of dollars that have gone astray.

Dr Zeti said he wants to leave me a clean slate, said Muhammad. We have closed the investigation on 1MDB, and the payment of the compound will mark the conclusion of our investigation.

When asked if Bank Negara will be requesting the missing money back from 1MDB, Muhammad said: We were told that 1MDB needs time to restructure its debts and its a complex process. We will give them reasonable time to settle that.

The Bank of England cut its growth outlook for the UK from 2016 through to 2018 on Thursday, as it announced no change to its main interest rate and stock of purchased assets.

Members of the Monetary Policy Committee (MPC) voted unanimously to keep the main rate at the record-low of 0.5 percent and maintain the banks stock of purchased assets at £375 billion ($543.4 billion). The follows the MPCs meeting this week and came as no surprise after seven years of holding rates.

In the United Kingdom, activity slowed in the first quarter and a further deceleration is expected in the second quarter. There are increasing signs that uncertainty associated with the EU referendum has begun to weigh on activity ... In the Committees latest projections, activity growth recovers later in the year, but to rates that are a little below their historical average, the banks summary of the MPC meeting said.

Interest rates are too low for the current US economy, Kansas City Fed President Esther George said Thursday.

She said she backs gradual rate hikes, adding that low rates can create economic risks. George votes on the US Federal Reserves policymaking committee and was the only member to vote for a rate hike at its April and March meetings.

I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for todays economic conditions. The economy is at or near full employment, and inflation is close to the FOMCs target of 2 percent, yet short-term interest rates remain near historic lows, she said in prepared remarks to business leaders in New Mexico.

Her comments followed separate remarks Thursday from Boston Fed President Eric Rosengren and Cleveland Fed President Loretta Mester, who also vote on the Feds rate-setting committee. Rosengren said markets are underestimating the pace of potential hikes, while Mester added that uncertainty should not prevent the Fed from acting on policy changes.

BEIJING Chinas economic indicators showed signs of improvement in the first quarter but a sluggish world economy and volatile markets deprive the changes of a solid basis, state television quoted Premier Li Keqiang as saying on Friday.

Li said the overall economic situation was better than expected and he was confident the government would be able to maintain medium- to high-speed economic growth, despite the difficulties.

In the first quarter of this year, Chinas economic indicators showed more improvement, Li said, but added, The basis of such improvement is not solid due to the impact of sluggish world economy and market volatility.

Li made the remarks during a meeting with the visiting German foreign minister, Frank-Walter Steinmeier.

Top Chinese officials have said the economy was showing signs of improvement while capital outflows were easing.

The government is due to release key economic data, including first-quarter economic growth, next week.

Chinas economic growth slowed to 6.8 percent in the fourth quarter, its weakest since the financial crisis that began in 2007 and 2008.

Separately, in a paper published on Friday, researchers at the central bank said China should gradually adjust banks reserve requirement ratio (RRR), based on the balance of payments and economic changes.

The Peoples Bank of China has cut interest rates six times since November 2014 and reduced its RRR - the proportion of deposits banks must hold with the central bank as reserves - several times, to support the slowing economy.

The central bank is widely expected to cut the RRR further, to support economic growth.

(Reporting by China Monitoring Desk and Kevin Yao; Editing by Clarence Fernandez)