Last Thursday’s Monetary Policy Committee meeting resulted in another anti-climax (excerpt):
At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent…
…For the Malaysian economy, domestic demand has continued to support growth amid the continued moderation in external demand. The sustained weakness in the external sector may, however, affect the overall growth momentum. Going forward, private consumption is expected to remain steady underpinned by income growth and stable labour market conditions. Capital spending in the domestic-oriented industries and the ongoing implementation of infrastructure projects will also support investment activity…
…The MPC considers the current stance of monetary policy to be appropriate given the outlook for inflation and growth. In addition to domestic conditions, the MPC will continue to carefully assess the global economic and financial developments and their implications on the overall outlook for inflation and growth of the Malaysian economy.
The language is a little more cautious than the preceding couple of meetings, but the expectations appear to be for continued growth even as inflation remains subdued.
Having said that, the signs of stress appear to be there even on the monetary front. BNM is having to do a lot less to maintain the overnight rate on the OPR target (RM millions):
Over the last five months, BNM has effectively released almost RM24 billion into the banking system, indicating upward market pressure on the overnight rate i.e. liquidity is getting short. The biggest reason for that is banks’ desired reserve level has also increased (RM millions):
Deposits of FIs at BNM are now at the highest level since early 2011, although well below the record amounts set aside in early 2008 during the commodity price run-up.
The symmetry between BNM bills outstanding and deposits of FIs at the central bank in 2013 is very close, though the drop in bills exceeds deposits by about RM4 billion, which leaves the interpretation that liquidity conditions are getting a little tighter than last year’s.
Previous declines of this magnitude in bills outstanding have coincided with periods of economic or financial stress (e.g. the bursting commodity bubble in 2008 and the Greek debt crisis coming to a head in late 2011), which is a good enough reason to be a little cautious about the state of the economy.
So even though the policy stance has not changed does not mean BNM has been sitting on its hands. Loan growth over the first few months of the year has been pretty anaemic, largely due to slowing loan demand rather than higher credit standards, and has fallen below 10% in annual log terms for the first time in three years.
We’re edging closer to a bias towards easing.