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Markets relieved as Malaysia taps Zeti deputy as new central bank chief

04/27/2016 | 05:59am EST
Malaysia's Bank Negara Governor Zeti Akhtar Aziz attends an Islamic Finance Services Board event n Kuala Lumpur, Malaysia

KUALA LUMPUR/SINGAPORE (Reuters) - Malaysia has named a Bank Negara deputy governor to head the central bank, succeeding its widely-respected, longtime leader in a move welcomed by markets anxious about economic and political problems confronting the country.

Muhammad Ibrahim, 56, comes in at a time when Prime Minister Najib Razak faces political pressure and the country's economic challenges are the biggest since the 1997-98 Asian financial crisis.

In a statement accepting his appointment on Wednesday by Najib, Muhammad said it is "important for the central bank to maintain monetary and financial stability".

In announcing the appointment, Najib expressed confidence that under Muhammad's leadership, the central bank "will continue assisting the government with advice to further strengthen Malaysia’s economy, as well as managing monetary policy, and regulating and developing the financial services industry."

Markets players see Muhammad as a non-political candidate approved by outgoing governor Zeti Akhtar Aziz.

The appointment "is positive on the ringgit as the new governor is from the central bank rather than the government," said Qi Gao, an emerging Asian currency strategist for Scotiabank in Hong Kong.

The ringgit <MYR=MY> turned firmer after the announcement and strengthened to 3.9080 per dollar. It stood at 3.9110, up 0.4 percent from the previous close, as of 0824 GMT.

Gao said that if the Federal Reserve remains "dovish" at its meeting this week, "we will see more portfolio inflows to Malaysia.”

Muhammad, who will begin a five-year term on May 1, will chair his first policy meeting on May 19. His first public appearance should be when first quarter growth figures are announced on May 13.

ZETI'S STEADY HAND

After Zeti's steady hand on the tiller for 16 years, businesses and investors will be looking for policy continuity and assurances about the central bank's independence.

"Clearly we got a good outcome today... wouldn’t really say it’s a game changer for the economic situation, but what it basically says is we going to get policy continuity from the central bank," said Brian Tan, a Singapore-based analyst with Nomura.

Last year, the ringgit was Asia's worst performing currency, losing nearly 19 percent against the U.S. dollar as the economic was hit by tumbling commodity price and by a political crisis engulfing Najib, after reporting of foreign transfers made into a personal bank account, and state-run fund 1Malaysia Development Berhad, which has huge debts.

This year, the ringgit has strengthened, though economic concerns including weak consumption remain.

Zeti, who steps down on April 30, was named as one of the world's best central bank chiefs by Global Finance magazine in 2009.

Muhammad was one of Zeti's deputies since 2010. During a career spanning 32 years with the central bank, Muhammad held a key role during the Asian financial crisis as managing director of Danamodal Nasional Berhad, a bank recapitalization agency.

The new governor is a member of the central bank's monetary policy committee and is an independent director on the board of national oil firm Petronas.

A chartered accountant and University of Malaya graduate, he holds a master's degree from Harvard University and a postgraduate diploma in Islamic banking and finance from the International Islamic University Malaysia.

Southeast Asia's third-largest economy grew 5 percent in 2015, slowing from 6 percent in 2014. In January, Najib cut this year's forecast to 4.0-4.5 percent from 4.0-5.0 percent.

(Additional reporting by Rozanna Latiff and Emily Chow; Writing by Praveen Menon; Editing by Richard Borsuk)

By Joseph Sipalan and Jongwoo Cheon


ę Reuters 2016
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