Monday, July 15, 2013

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.

Monday, July 8, 2013

The Hammer Falls

BNM isn’t wasting much time (excerpt, emphasis added):

Measures to Further Promote a Sound and Sustainable Household Sector

Bank Negara Malaysia announces today, the implementation of a set of measures aimed at avoiding excessive household indebtedness and to reinforce responsible lending practices by key credit providers. These measures, which take effect immediately, complements the earlier measures introduced since 2010 to promote a sound and sustainable household sector. The measures are:

  1. Maximum tenure of 10 years for financing extended for personal use;
  2. Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties;
  3. Prohibition on the offering of pre-approved personal financing products.

The limits on financing tenure will not affect applications made before today...

...These measures are issued pursuant to section 31(1)(a) of the Central Bank of Malaysia Act 2009 and apply to all financial institutions regulated by Bank Negara Malaysia, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Berhad and AEON Credit Service (M) Berhad. This is to ensure consistency in the financing practices across all the key credit providers.

Not before time. This action was long overdue, and only needed the legislative authority to allow BNM to enforce it effectively outside of the banking system.

About the only other thing I can think of to add to this would be if the government tightened its own limits on salary deductions allowed to civil servants. But that’s obviously not within BNM’s purview.

May 2013 External Trade

So much for expecting a bounce. May’s trade numbers offer little room for optimism (log annual and monthly changes; seasonally adjusted):


Friday, July 5, 2013

The Strange And Mysterious Workings Of Singapore’s Monetary Policy

Singapore is a pretty unique economy, what with being a very open island trading nation, and with its political and social history.

Its approach to monetary policy is just as unique. Unlike the vast majority of central banks, Singapore’s Monetary Authority (MAS) uses the exchange rate as its primary monetary policy instrument. While this in itself is not too radical, unlike exchange rate regimes in the past the application of this policy is not through targeting a level of the exchange rate, but the slope and breadth of its appreciation.

This makes economic sense, as inflation is an appreciation in the general price level, not the price level itself. If the goal of monetary policy is stable prices (and/or economic growth), then a policy of exchange rate appreciation to regulate an increase in prices is appropriate.

People First?

I read this article last week, but something about it really bothered me. It was like an itch I couldn’t scratch. I only figured out what was wrong yesterday (excerpt; emphasis added):

Time govt lived up to its slogans, says MIER chief

KUALA LUMPUR (June 28): Malaysia's economic policies need to be implemented in line with the government's slogan of 'People First,' which means the people should be the ones benefitting "firstly and mostly," the chief of the Malaysian Institute of Economic Research (MIER) said.

Unfortunately, this is not the case, pointed out Dr Zakariah Abdul Rashid, who is executive director of the think tank.

In an exclusive interview with, Zakariah touched on various issues, including the importance of interpreting economic indicators carefully, the widening gap between the rich and poor, doing away with race-based assistance and the importance of being competitive in choosing our leaders...

Thursday, July 4, 2013

Efficient Markets and Perfect Information

Robert Skidelsky on the efficient markets hypothesis and  New Classical economics generally:

Every general crisis involves self deception as well as the deception of others. In Donald Rumsfeld’s immortal phrase, it is the “unknown unknowns” which trip us up. If only one person were perfectly informed, there could never be a general crisis.

But the only perfectly informed person is God, and He does not play the stock market.

[Skidelsky, Robert, “Keynes: The Return of the Master”, Audible Inc, 2009]

Wednesday, July 3, 2013

What’s Malaysia’s Full Employment Rate?

I honestly don’t know, but our new EPU head thinks its 4% (excerpt):

Parliament: 20 years of full employment, says Abdul Wahid

KUALA LUMPUR: The country's sustainable economic growth over the past 20 years has kept the unemployment rate at below 4 percent, which based on economic definition, is considered as full employment, Dewan Rakyat heard.

Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar said the good economic growth since 2011, from 5.1 percent to 5.6 per cent last year saw the creation of 438,800 jobs in 2012, compared to 385,000 previously.

Tuesday, July 2, 2013

The Financial Services Act

BAFIA is no more; long live the FSA (excerpt):

Financial Services Act 2013 and Islamic Financial Services Act 2013 Come Into Force

The regulatory and supervisory framework of Malaysia enters a new stage of its development as the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) come into force on 30 June 2013.

The FSA and IFSA is the culmination of efforts to modernise the laws that govern the conduct and supervision of financial institutions in Malaysia to ensure that these laws continue to be relevant and effective to maintain financial stability, support inclusive growth in the financial system and the economy, as well as to provide adequate protection for consumers. The laws also provide Bank Negara Malaysia with the necessary regulatory and supervisory oversight powers to fulfil its broad mandate within a more complex and interconnected environment, given the regional and international nature of financial developments. This includes an increased focus on preemptive measures to address issues of concern within financial institutions that may affect the interests of depositors and policyholders, and the effective and efficient functioning of financial intermediation.

It is important that Malaysia's regulatory and supervisory system is adequately equipped to respond effectively to new and emerging risks so that confidence in the financial system is preserved and that the critical financial intermediation activities which are vital to the economy are not disrupted. The FSA and IFSA amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors respectively, namely, the Banking and Financial Institutions Act 1989 (BAFIA), Islamic Banking Act 1983, Insurance Act 1996 (IA), Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date…

Shadow banking has become an increasing concern among regulators the world over in the aftermath of the Great Recession. The FSA and IFSA is BNM’s response, allowing it broader powers and a wider scope for those powers, encompassing “financial holding companies and non-regulated entities to take account of systemic risks that can emerge from the interaction between regulated and unregulated institutions, activities and markets.”

This suggests that entities previously outside banking regulation such as co-ops, development institutions, and companies with significant shareholdings in banks may come under BNM’s withering and critical eye.

I can’t wait to see what happens.

Monday, July 1, 2013

The Endogenity Of Money

I’ve been meaning to write a post about my…conversion…to endogenous money theory for many moons now, but its always been on the back burner. The reason why I think endogenous money is important is because conceptually, it provides a much more accurate view of how the financial and monetary system in the modern era actually works.

And the reason why I’m posting about it now is because somebody did a remarkably good summary of endogenous money theory (excerpt):

Endogenous Money 101

Money is at the centre of all modern capitalist economies. Understanding its nature and origins is therefore of great importance. At the heart of Post Keynesian monetary theory is the idea of endogenous money.

This is opposed to the mainstream exogenous money supply theory: the idea that the central bank has direct control over the money supply and its growth. The latter theory is wrong, and I review that major points of endogenous money below.