Friday, November 8, 2013

BNM Watch: No Change

The outcome of yesterday’s Monetary Policy Committee was as predictable as the day – which is of course, a good thing. If things were actually interesting, something bad would have been happening (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 economy continues to improve at a moderate pace…Looking ahead, there remain considerable risks that could affect the pace of the global recovery.

In the Malaysian economy, the expansion in domestic activity was supported by improvements in exports…Going forward, the growth momentum will benefit from the expected improvement in the external sector amid some moderation in domestic demand. Domestic investment activity will however continue, led by private sector capital spending and the ongoing implementation of infrastructure projects. Domestic demand is expected to moderate, reflecting the public sector consolidation and some moderation in private consumption. Uncertainties in the global environment may also affect the overall growth momentum.

Inflation rose to 2.6% in September, reflecting mainly the increase in petrol prices…Looking ahead, inflation is expected to edge up driven by domestic cost factors. However, the inflation outlook is expected to be tempered by a stable external price environment, moderate domestic demand pressures, expansion in domestic capacity and improvements in food production and distribution.

In the MPC’s assessment, there continue to be uncertainties in the balance of risks surrounding the outlook for domestic growth and inflation…

This is a bit more positive than the statement from the last meeting, but then everybody can see that the global economic climate has begun to clear. The guidance on inflation looks to be pretty clear too – they expect some second-order effects from subsidy rationalisation, but the effect will be small and temporary.

On the growth front, I think we’ll see the GDP deflator stabilise for 3Q2013, with slightly higher oil prices and CPO prices coming back up. That and substantial employment growth suggests that NGDP might pick up again, and save the government some blushes from having to cut down on spending even more than they thought.

Steady as she goes.

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