Friday, September 19, 2014

BNM Watch: OPR On Hold

It was a coin toss and tails it is (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….

…For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports…While private investment activity is projected to remain robust, private consumption is expected to moderate…The prospects are for the Malaysian economy to remain on a steady growth path.

Inflation is expected to remain relatively stable for the remainder of the year. Going into next year, inflation is projected to edge higher and is expected to be above its long-term average due to domestic cost factors….

The current stance of monetary policy remains supportive of growth…Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks….

It looks like the MPC are erring on the side of growth. In hindsight, that’s predictable as BNM has always had a bias towards growth (and I’m kicking myself for not taking that into account).

The important points here I think are the ones highlighted:

  1. For inflation to be relatively stable could be read in two ways. You could assume subsidy rationalisation will offset the base effect from next year (a year-on-year growth perspective). Or, you can take that as a signal that there won’t be subsidy rationalisation, and there won’t be any corresponding price jumps until the GST comes in next April (a month-on-month growth perspective). Based on my thoughts on this yesterday, I think the latter explanation applies.
  2. The line about “new information” suggests any further OPR moves will be data dependent. That means money supply, credit, exports and production data for August and September will provide significant clues to which way the MPC will lean at the last meeting for the year in November.


  1. Just got the invite for MEA's post-budget dialogue.

    Good luck. I guess you're not live blogging this year.

    1. @Jason

      Post-budget dialogues on Monday, Budget's on Friday. Shouldn't be a problem I think, though it's going to be a busy weekend.

  2. So, the jury is still out on the benefits of a "strong" Ringgit?

    Darn, I was thinking that it was the macho thing to do and all - boost the Ringgit, increase Malaysians' purchasing power (hello, Australian property) and reduce "imported" inflation.

    All very mercenary, no doubt.

    But, like you posted, BNM seems to have chosen growth over the long-term fundamentals of an "undervalued" or "weak" Ringgit.

    But, in so doing, it's merely postponing the pain and the consequences further down the road, when a new BNM Governor will be left to grapple with these issues.

    In the meantime, let us be very clear that the Fed operates as a law unto itself. And that it doesn't give a damn if the ECB and the BOJ persist in "loose money" policies and ultra-low interest rates.

    Nope.....BNM is just postponing the inevitable reckoning further down the road!

  3. Replies
    1. I am in Singapore currently and have been reading reports about "headline inflation" and "core inflation" in the city-state.

      Are there similar figures published for Malaysia?

    2. @bee farseer

      Headline inflation is the same as CPI inflation in Malaysia. There is however no "official" core measure.

      BNM has multiple measures of core inflation, but none of them are published. As a result, many analysts calculate their own, including me.