Friday, January 28, 2011

BNM Signalling No Hikes Ahead

Yesterday’s MPC statement was as bland as they come, until the very last line:

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 2.75 percent...

…At this stage, the MPC considers the current monetary policy stance as appropriate and consistent with the current assessment of the economic growth and inflation prospects. The stance of monetary policy continues to remain accommodative and supportive of economic growth. However, the large and volatile shifts in global liquidity are leading to a build up of liquidity in the domestic financial system. While the liquidity in the financial system has been manageable, going forward, additional policy tools such as the statutory reserve requirement and macroprudential lending measures may be considered to avoid the risks of macroeconomic and financial imbalances.

What that says to me is that BNM won’t consider using a sledge hammer to whack a fly – unless there’s evidence of a systemic change in aggregate price picture. I think the SRR will be used as a signalling measure, telling the markets that BNM is considering tightening further. It’s pretty much a paper tiger at the moment, given the current SRR level (1%) and the banking system’s actual reserve ratio (15%).

“Illicit” Capital Outflows: We’re No 5 In The World

Not something to be proud of – Global Financial Integrity released a report yesterday on capital outflows from developing countries, and Malaysia ranks in the top ten:

Illicit Financial Flows from Developing Countries: 2000-2009

Illicit outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion, per year, over the 2000-2008 time period measured…

….Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2008 were:

  1. China: $2.18 trillion
  2. Russia: $427 billion
  3. Mexico: $416 billon
  4. Saudi Arabia: $302 billion
  5. Malaysia: $291 billion
  6. United Arab Emirates: $276 billion
  7. Kuwait: $242 billion
  8. Venezuela: $157 billion
  9. Qatar: $138 billion
  10. Nigeria: $130 billion

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.

The Determinants of FDI

Hot of the press at the NBER (abstract; emphasis added):

Determinants of Foreign Direct Investment

Empirical studies of bilateral foreign direct investment (FDI) activity show substantial differences in specifications with little agreement on the set of covariates that are (or should be) included. We use Bayesian statistical techniques that allow one to select from a large set of candidates those variables most likely to be determinants of FDI activity. The variables with consistently high inclusion probabilities are traditional gravity variables, cultural distance factors, parent-country per capita GDP, relative labor endowments, and regional trade agreements. Variables with little support for inclusion are multilateral trade openness, host country business costs, host-country infrastructure (including credit markets), and host-country institutions. Of particular note, our results suggest that many covariates found significant by previous studies are not robust.

Wednesday, January 26, 2011

World Bank Research: The Multiplier Doesn’t Exist

More and more, in a globalised world with many trade linkages, the evidence suggests that the macroeconomic orthodoxy of the past thirty-forty years is actually correct (abstract):

How large is the government spending multiplier ? evidence from World Bank lending

This paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers. The approach relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of public spending, and (2) actual spending on World Bank-financed projects is typically spread out over several years following the original approval of the project. These two features imply that fluctuations in spending on World Bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. World Bank project-level disbursement data are used to isolate the component of public spending associated with project approvals from previous years, which in turn can be used to estimate government spending multipliers, in a sample of 29 aid-dependent low-income countries. The estimated multipliers are small, reasonably precisely estimated, and rarely significantly different from zero.

Emas Dan Perak

Sorry, couldn’t resist the pun (for those not familiar with Bahasa Malaysia, the title reads “Gold and Silver”).

The Perak state government appears to be pushing ahead with plans to issue dirhams and dinars:

Perak to launch gold dinars next month

IPOH: The Perak Government will launch gold dinar and dirham currencies next month in a move to diversify its reserves.

State executive councillor Datuk Mohamad Zahir Khalid said the state government was working with the Kuwait Finance House (KFH) to introduce the currencies as the finance company has vast experience in handling the currencies.

He added the currency to be introduced by Perak would be very different from that introduced by the Kelantan Government before.

Tuesday, January 25, 2011

Quantitative Easing: Whole Lotta Nuthin’ Goin’ On

I’m still somewhat bemused that people ascribe all kinds of bad things things to the Fed’s quantitative easing. So far hyperinflation hasn’t happened, the dollar hasn’t collapsed, and civilization hasn’t come to an end. Once you actually look at the numbers, it’s pretty easy to understand why.

But first back to basics:

Friday, January 21, 2011

November 2010 Employment Report

Too good to last – October’s bumper increase in employment wasn’t sustained (‘000):


December 2010 CPI

The report’s been out a couple of days now, and it’s all about the pain (log annual and monthly changes; 2000=100):


Tuesday, January 18, 2011

Talking Dinars

I was invited to this public lecture yesterday (and would have loved to have gone), but couldn’t make it:

Islamic Gold Dinar: Myths & Reality

Recently, there has been a well-publicised campaign about the re-introduction of the Islamic Gold Dinar. The proponents of this idea, the denarists, advocate that this country as well as the whole Islamic world “urgently” return to the Islamic gold dinar. They argue that if this return is achieved, nearly all the ills of modern economies would be solved. In short, what the denarists are doing is to propose an essentially historical system for the future.

INCEIF and the Association of Chartered Islamic Finance Professionals (ACIFP) invite you to a Public Lecture by Prof. Dr. Murat Cizakca, a Professor of Comparative Economic History at INCEIF. He will present a thorough analysis of gold /silver coinage systems in history.

Malaysia in the Top-30 by 2050?

From this weekend’s The Star:

Is 2050 our next big target?

...HSBC Bank plc issued the report, The World in 2050: Quantifying the Shift in the Global Economy, on Jan 4, and it's relevant to us here because Karen Ward, the bank's senior global economist and lead author of the report, seems pretty optimistic that Malaysia will fare well over the next four decades...

...According to the HSBC analysis, come 2050, Malaysia will be No. 20 among the world's top 30 economies, as ranked by the size of gross domestic product (GDP). That will mean climbing 17 rungs between now and 2050, the biggest jump recorded by any of these 30 countries. Thailand, the Netherlands, Switzerland, Hong Kong and South Africa are among those below Malaysia in the league table. Singapore will not even be in HSBC's top 30…

Thursday, January 13, 2011

4Q 2010 Federal Government Debt Update

I feel a little guilty because I’ve been planning this post for a while now but just haven’t got round to it. To make that up, I’m jumping straight into the 4th quarter numbers, even if they aren’t out yet. Nevertheless, government borrowing was minimal in December, so I’m fairly sure my estimates won’t be too far off reality when they’re released next month.

I’ve already touched on the raw figures for the federal government budget up to 3Q 2010 (seasonally adjusted, RM millions):


Tuesday, January 11, 2011

November 2010 Industrial Production

The November IPI report was a bit of a mixed bag – while growth certainly took a step back, it’s not a bad as it looks on first blush.

While the annual percentage changes showed growth, month-on-month numbers were negative – but that’s a seasonal effect. The seasonally adjusted numbers were kinder (log annual and monthly changes; seasonally adjusted):


Monday, January 10, 2011

29%, 40%, It’s Still Not Enough

Speaking about the level of tertiary enrolment in Malaysia, the Deputy Director-General of the Ministry of Higher Education says the World Bank numbers are incorrect:

Higher education more accessible

KUALA LUMPUR: Accessibility to higher education in Malaysia is around the 40% mark, and not 29% as reported by the World Bank.

Higher Education Mi­­nistry deputy director-general (private higher education institutions) Prof Datin Dr Siti Hamisah Tapsir said the World Bank did not factor in those pursuing A-levels or equivalent qualifications resulting in the unfavourable score.

“We need to correct this as the issue was recently raised in Parliament,” she said in her speech after opening The Star Education Fair 2011 on behalf of Higher Education Minister Datuk Seri Mohamed Khaled Nordin, who is overseas.

“In fact, around 40% of youth – those aged between 17 and 21 – are enrolled at higher education institutions,” she added.

Friday, January 7, 2011

Jeff Frankel Thinks The West Can Learn Lessons In Economic Theory From The East

Hard to put it any better than he does:

The Phylloxera Analogy: Lessons from Emerging Markets

In 2008, the global financial system was grievously infected by so-called toxic assets originating in the United States. As a result of the crisis, many have asked what fundamental rethinking will be necessary to save macroeconomic theory. Some answers may lie with models that have in the past been applied to fit the realities of emerging markets — models that are at home with the financial market imperfections that have now unexpectedly turned up in industrialized countries. The imperfections include default risk, asymmetric information, incentive incompatibility, procyclicality of capital flows, procyclicality of fiscal policy, imperfect property rights, and other flawed institutions. To be sure, many of these theories had been first constructed in the context of industrialized economies, but they had not become mainstream there. Only in the context of less advanced economies were the imperfections undeniable. There the models thrived.

It's a short blog post, but it includes a useful ungated link to his survey of monetary policy in emerging markets (download here; Doc format).

Thursday, January 6, 2011

DOS Puts Trade Data Online

I’ve no idea when the announcement was made, but the Department of Statistics has now made available detailed external trade data for Malaysia online. The database covers 2006 onwards on a monthly frequency and you can query by country, country grouping, or product codes (both HS and SITC codes), with output in pdf or Excel formats.

This is one heck of a fantastic resource for researchers, especially if DOS manages to extend the sample range further back.

For a good alternative for longer series (all the way back to the 60s), you can try the United Nations Comtrade database.

November 2010 External Trade

As if to offset October’s great numbers, November 2010 exports showed a mild drop (log annual and monthly changes):


I’m not inclined to subscribe too much to this seeming slowdown, even if my forecast last month indicated slightly higher exports for November – the numbers are at worse a little below the average for the year, and is counterbalanced by the jump in October exports, not to mention well within the 1 standard deviation band of the forecast. The drop may just be a factor of lag times in orders and shipping, plus an indication of order fulfilment for stocks of goods for the holiday season.

November 2010 Monetary Conditions

I’m late with this as usual. But it’s always useful to review happenings over the last few months, especially when they’re as surprising as this data is.

In terms of the money supply, not a whole lot changed in November (log annual and monthly changes; seasonally adjusted):