Friday, March 9, 2012

BNM Watch: Don’t Expect Anything Today

The Governor’s remarks from yesterday (excerpt, emphasis added):

OPR at 3% very ‘accommodative,’ says Zeti

KUALA LUMPUR: The overnight policy rate (OPR) at 3% currently is accommodative but will keep tab of inflationary risks, Bank Negara said.

Speaking on the sidelines at the EU-Malaysia Chambers of Commerce and Industry's Quarterly Financial Panel Discussion, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said: “The benchmark interest rate at 3% is very accommodative.

“This is our assessment that we want to be supportive of the economy but at the same time will look out for developments taking place as well as the risk of inflation.”

Many economists expect the central bank to uphold the current rate in its monetary policy committee meeting today in view of the rising inflationary pressure due higher crude oil prices. The OPR has remained unchanged at 3% since last May after rates were raised four times from 2% in March 2010.

Zeti said the country's economy was essentially driven by domestic demand and for the last three years it had grown by more than 6%, adding that private sector investments had also grown significantly and was expected to continue this year.

Besides domestic demand, she added that Government spending in major projects would also drive growth.

Translation: there will be no cut in the OPR today.

And pace any bad developments in the external sector, I think the bias will be increasingly towards hiking rates by the end of the year. We’ve got a boatload of large construction projects taking off this year, which would stress the supply chain for building materials – i.e. they’re going to have an inflationary impact. So I’m seeing any chance of a further easing in interest rates to be pretty far off, especially since the credit growth numbers are expected to fall off to more reasonable levels.


  1. I am looking at this from very layman POV.The next 3 years will be intense for construction industry..MRT,LRT,KLIFD etc..realy2 intense.Expect more imported labor etc.Think things will get a lot more expensive.
    With the construction n inflation pushing up GNI;next three years nominal growth can hit double digits.
    The worry is what happens after that?1998 again.

  2. We aren't running a trade deficit this time. And we have a pretty competent governor at BNM. She'll not allow runaway bank lending, as happened in 1995-1997. So while I do think all these projects will raise inflationary pressure, we're in a far better position now than we were before if things do go wrong.

  3. We will be bringing in a lot of big money capex items for the projects.And there will also more outflows from consultancies,imported workers incl high level specialist.I am also certain that with the pace of construction envisaged..even basic stuff like cement/clinker n rebars may need to be imported i.e as in 96-98.Guess unless export picks up the trade surplus maybe in danger.
    Hope BNM can curtail the impact,Thanks.
    Your response giving me some positives,

  4. Yes, leakage (in the economic sense) is what I'm thinking about when thinking of the outlook for this year. I don't think there'll be enough import demand to obliterate the trade balance, but I do think it will cause some downward pressure on the exchange rate (which is also income negative).

    One other factor I should have mentioned is that in pre-1997 crisis, the Ringgit had a soft peg against the USD. With a more flexible exchange rate regime as we have today, the exchange rate will act as a buffer for these kinds of imbalances. We'll see some external deterioration, but not the kind of one-way bet against the Ringgit that will attract speculators.

  5. Thanks sir,
    Actually I am trying to time locking on USD to fund my child's education for next three years.Have this crazy intuition that it maybe 2.8 soon.But maybe we amateurs should not be timing complex markets;get on with our main objective and have a good night sleep.
    Memories of post 1998 when first child's education just doubled is a lesson.