Thursday, January 27, 2011

OPR To Stay At 2.75%

The consensus is pretty unanimous on this issue – there’s no call for BNM to hike interest rates yet. It’s only when we get into the second half of the year that opinions start diverge, but even then the majority are only looking for a 25-50bp increase – inflation continues to rise below trend, and subsidy rationalisation has been conducted at such a measured pace that there have been few second-order effects on non-subsidy goods prices.

The joker in the pack is the potential for a spike in global commodity and food prices, but with growth in other emerging markets expected to slow (read: China), I don’t see that really happening.

I’m expecting the language of the Monetary Policy Committee statement to be pretty bland – evidence of growth, but growing upside risks to inflation. We’ll see this evening, when it’s posted.


  1. Given some of the reports I have heard about reduced crop yields in parts of the world due to droughts and the floods in Queensland, it is a given we're going to be seeing major price spikes in wheat and coal (at the minimum) in the near future that could take a while to resolve.

    Good call on the FOMC statement btw :)

    Off-topic: Are you planning to do a post on the Global Financial Integrity report on Illicit Fund Flows? Not being an economist, I was unable to determine the validity of the methodology that they use although it seemed to make sense.

  2. Hi,

    We've been fortunate that supply disruptions over the past few years have been short-lived. In any case, BNM generally doesn't respond to supply shocks. 2008 was an exception, but I think that was more due to tackling inflows from higher trade receipts.

    I read the GFI report last night. I think the methodology is ok, though I'm by no means familiar with this particular field. But I do have a problem with the terminology - capital flight is not necessarily "illicit", and calling it that gives the wrong connotation.

    I think the BOP part of the estimates look about right - my own estimates here. I have a briefing tis morning, but will try to verify the trade mispricing data later (it's very tedious, and might take a while). I suspect MNC transfer pricing between MNC country units might be a factor here.

  3. Look forward to your comments on the report. I'd rather not go into it here as its off-topic :)