KUALA LUMPUR, Jan 28: Malaysian prime minister Mahathir Mohamad on Wednesday blamed local depositors for pushing up interest rates, saying they had made funds more expensive by shifting money into foreign banks.``When people take their money out from our banks and put it in foreign banks, then our local banks have to borrow from foreign banks...so there is double interest,'' Mahathir told reporters.
``Of course the interest rate goes up,'' he said after attending a Chinese Lunar New Year celebration in the capital.
Malaysian interest rates have risen by nearly three percentage points in the last six months.
The central bank, Bank Negara, said on Tuesday that the weighted average for the three-month interbank rate for January stood at 9.33 per cent, up from 8.60 in December. The benchmark three-month Kuala Lumpur Interbank Offered Rate was fixed at 10.10 per cent on Tuesday.
Malaysia has lost billions of dollars from its financial system since the start of the Asian financial crisis in July. Theringgit has lost 45 per cent of its value against the US dollar while share prices have tumbled by about 50 per cent.
At the outset of the financial crisis, Mahathir aimed much of his criticism at foreign investors, accusing currency traders of conspiring to bring down the ringgit and stock prices.
More recently, he has spearheaded a drive to keep money in Malaysia's banking system and promote purchases of local goods -- moves that would reduce the use of foreign exchange and could boost the value of the ringgit against the US dollar.
Deputy prime minister Anwar Ibrahim said recently that ringgit-denominated deposits in foreign financial institutions had increased in recent months but there was no panic or cause for worry.
He said the deposits in foreign institutions had risen to about 20 billion ringgit ($4.5 billion) from between 10 billion and 15 billion before the onset of Asia's economic tumult.
Mahathir said that if deposits were not shifted into foreign banks, ``the interest rate is goodenough and the BLR (base lending rate) is low.'' The BLR for January is 10.45 per cent.
``The problem is the cost of money not the interest rates.If they (depositors) keep it within these (local) banks and don't withdraw, then the cost of money will be lower,'' he said.
Malayan Banking, the nation's top commercial bank, said on Monday that the rising cost of goods was likely to push up interest rates.
But Anwar, who is also finance minister, on Tuesday assured leaders from sectors considered ``productive'' by authorities, including manufacturing, that there was no credit squeeze despite the economic slowdown.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
