Seeing The Forest Through The Trees

Of all the mind-boggling things to suggest (excerpt):

Forex broker proposes raising Malaysia's interest rates

KUALA LUMPUR: Cutting interest rates is not an option for Bank Negara to prevent further weakness in the ringgit, said international forex broker FXTM.

A better option for the central bank would be to raise interest rates, said its chief market analyst Jameel Ahmad….

…He added that interest rates in Malaysia were relatively low, at 3.25%, compared to Indonesia at 7.5%.

“If you cut interest rates, people are not going to be encouraged to keep their capital in Malaysia.

“So, any reduced interest rates will not help the ringgit at all,” he said.

Low Interest Rates: It Isn’t Just QE

We’re nearing Fed “liftoff” with a better than 50% chance that the US Fed Funds Rate will rise above 0%-0.25% for the first time since 2008. But even taking into consideration the extraordinary monetary accommodation conducted by the major advanced economy central banks, interest rates globally have been in secular decline for very nearly 50 years, since the heyday of stagflation in the 1970s.

Money printing doesn’t half explain what’s going on.

BNM Watch: OPR Stays At 3.25%

Yesterday’s MPC statement came in more hawkish than expected (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…Volatility in the international financial markets has increased amid shifts in global liquidity and heightened uncertainty particularly with regard to global growth prospects and the decline in commodity prices….

BNM Watch: OPR Still On Hold

More or less as expected by just about everyone, yesterday’s MPC meeting has the OPR still on hold at 3.25% (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent.

BNM Watch: OPR Unchanged, But Not For Long

Last week’s Monetary Policy Committee statement made very clear that policy tightening of some sort or another is on the way (excerpt; emphasis added):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

Global growth moderated in the first quarter with several key economies affected by weather-related and policy-induced factors. Looking ahead, the global economy is expected to remain on a path of gradual recovery….

…For Malaysia, latest indicators suggest that the domestic economy continued to register favourable performance in the first quarter. Going forward, growth will remain anchored by domestic demand with additional support from the improved external environment….

…Inflation has stabilised in recent months amid the more favourable weather conditions and as the impact of the price adjustments for utilities and energy moderate. Going forward, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors.

Amid the firm growth prospects and inflation remaining above its long-run average, there are signs of the continued build-up of financial imbalances. While the macro and micro prudential measures have had a moderating impact on the growth of household indebtedness, the current monetary and financial conditions could lead to a broader build up in economic and financial imbalances. Going forward, the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.

The key paragraph is the last one, with its ominous warning of “degree of monetary accommodation may need to be adjusted”. That’s about as clear a signal as can be given.

March 2014 Monetary Conditions

Monetary conditions in March appear to have tightened (log annual and monthly changes; seasonally adjusted):

M2 growth fell to 6.0% yoy, which is more than a little worrying – as a rule of thumb, you want to see money growth approximate real growth plus inflation. Having said that, real indicators have been pretty strong, and loan applications (demand) and especially approvals (supply) look decent; these imply that much of the drop off in money growth is coming from other components of M2.

February 2014 Monetary Conditions

I was really concerned when I first heard the news last week. After having a peek at the data, I’m don’t feel much better (log annual and monthly changes):

M2 growth is pretty weak at a tad over 6%, even after taking into account CNY effects. Overall, money supply growth has been below 8% for the last eight months. That’s uncomfortably low – lower than I’d like it to be. It implies either slower growth, or disinflationary pressure.

Reforming BLR

From a press release by Bank Negara a week ago (excerpt):

Industry Consultative Paper on New Reference Rate Framework for Financial Industry

Bank Negara Malaysia is issuing an industry consultative paper to the financial industry on a new reference rate framework to replace the base lending rate (BLR) quoted by financial institutions in the pricing of retail loans.

November 2013 Monetary Conditions

Happy New Year!

I’ve taken a break from writing about Malaysia’s monetary environment for a few months now, as it was getting boring and a bit too much like work. But a lot has happened in the last couple of months, and things are getting interesting again.

Interest rates have taken a roller coaster ride since April 2013, when the rumours about the Federal Reserve planning a pullback in its QEIII program started circulating. Speculation has now turned to reality, though since the formal announcement occurred in mid-December, we won’t see the full impact until the December figures are in at the end of this month.

BNM Watch: Interest Rates On Hold But Liquidity Support Increasing

Last Thursday’s Monetary Policy Committee meeting resulted in another anti-climax (excerpt):

Monetary Policy Statement

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.

March 2013 Monetary Conditions

Apropos of the Monetary Policy Committee Meeting last week, monetary conditions in Malaysia for 2013 up to March mirror developments in prices and incomes (log annual and monthly changes; seasonally adjusted):

BNM Watch: OPR Stays At 3.00%

Ho-hum (excerpt)

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global growth momentum has continued to be modest. Latest economic data suggests that the recovery is uneven while downside risks to global growth prospects remain…

…In the Malaysian economy, while the external sector is affected by global developments, domestic demand has continued to provide support to growth…

…Inflation remained low at 1.5% in the first quarter. While inflation is expected to continue to rise during the year, it is projected to remain modest…Nevertheless, given the modest global growth prospects, pressures from global commodity prices are likely to be contained…

December 2012 Monetary Conditions

The other day, I characterised monetary conditions as boring – seems I might have spoken too soon. What is going on in the interbank and money markets? (RM millions)

Trading volume on the money market for 2012 (which covers MGS, T-Bills, BNM Bills, NIDs and BAs – I know, that’s a lot of acronyms) is a quarter below the average of 2011. December 2012 trading volume was just RM21.5 billion, which is less than half the average for 2012 – much of the drop has occurred in the last two months of the year.

November 2012 Monetary Conditions

One of the toughest challenges a writer can face is overcoming writer’s block – it’s hard to start writing again once you’ve stopped for a while. It’s even harder when there’s not much to write about, as Malaysian data over the past couple of months have been indicating an economy that’s been cruising along (in other words, b-o-o-oring).

So here’s my attempt at getting things going again. There’s all sorts of stuff I plan on covering, but it might take a while to get around to all of them, especially with my present work load (I’m currently working, among other things, on a country profile for a GCC member – not exactly helpful for thinking about the Malaysian economy).

In any case, here goes:

October 2012 Monetary Conditions

I was looking at liquidity conditions, and found something interesting, but I’ll get to that in a bit. M1 growth decelerated sharply in October, although M2 showed a slight uptick in growth (log annual and monthly changes; seasonally adjusted):

September 2012 Monetary Conditions

I haven’t done one of these in quite a while, mostly through sheer lack of time, but given the upcoming Monetary Policy Committee meeting this Thursday, now is as good time as any to reboot.

Over the last quarter, broad money supply growth has fallen off (log annual and monthly changes; seasonally adjusted):

Low Interest Rates ≠ Loose Monetary Policy

An interesting, but misleading, viewpoint from the Beeb (excerpt):

Lesson from Japan: Do low interest rates boost growth? By Mariko Oi BBC News, Tokyo

…In part to help small companies such as Hosobuchi, central bankers in Japan have been keeping interest rates low, in order to reduce their borrowing costs.

The truth is we don't have enough businesses or the need for investments to borrow the money”

Japanese interest rates have been close to zero since the mid-90s, but it has not offered a miracle cure.

BNM Watch: OPR Still On Hold

The statement at the conclusion of yesterday’s Monetary Policy Committee meeting was a model of brevity in stating the obvious:

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global growth momentum has moderated. Economic activity in most major advanced economies is slower amid greater policy uncertainty while conditions in the international financial markets continue to be volatile. These developments are affecting growth in the rest of the world. In emerging economies including in Asia, domestic demand is showing signs of moderation amid sustained weakness in external activity.

BNM Watch: MPC Keeps OPR On Hold

As expected, the OPR was kept at 3.00% at yesterday’s Monetary Policy Committee meeting (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The pace of the global recovery has moderated in the recent months. The latest data pointed to slower economic activity and more challenging growth prospects in several regions around the world…

In the domestic economy, recent data and surveys of business conditions suggest that consumption and investment activity remains resilient…The strong investment activity is mainly led by the domestic-oriented industries, the oil and gas sector and the steady progress in the construction of infrastructure projects.

Headline inflation is expected to remain moderate for the remainder of 2012. With some excess capacity in the economy, the strength of domestic demand is not expected to result in inflationary conditions…

That sums it up pretty well. If you want more brevity, it roughly translates to: the rest of the world is in trouble, but we’re doing ok.

Next meeting’s scheduled for September 6th, a little over two weeks after Aidil Fitri. Given the Ramadhan effect, the data’s going to be hard to figure out. Nevertheless, I don’t think there’s going to be significant enough changes in the economic outlook to warrant a move then either.

May 2012 Monetary Conditions

Local monetary conditions in May appeared to be a little tighter, though growth in M2 looks to be within a “normal” pace of activity (log annual and monthly changes; seasonally adjusted):

M1 growth crashed however on a monthly basis, largely from a drop-off in demand deposits. Broad money growth was better, but only due to higher savings deposits offsetting falls in other money substitutes, but particularly in forex deposits.