Monetary conditions in March appear to have tightened (log annual and monthly changes; seasonally adjusted):
M2 growth fell to 6.0% yoy, which is more than a little worrying – as a rule of thumb, you want to see money growth approximate real growth plus inflation. Having said that, real indicators have been pretty strong, and loan applications (demand) and especially approvals (supply) look decent; these imply that much of the drop off in money growth is coming from other components of M2.
I was really concerned when I first heard the news last week. After having a peek at the data, I’m don’t feel much better (log annual and monthly changes):
M2 growth is pretty weak at a tad over 6%, even after taking into account CNY effects. Overall, money supply growth has been below 8% for the last eight months. That’s uncomfortably low – lower than I’d like it to be. It implies either slower growth, or disinflationary pressure.
Happy New Year!
I’ve taken a break from writing about Malaysia’s monetary environment for a few months now, as it was getting boring and a bit too much like work. But a lot has happened in the last couple of months, and things are getting interesting again.
Interest rates have taken a roller coaster ride since April 2013, when the rumours about the Federal Reserve planning a pullback in its QEIII program started circulating. Speculation has now turned to reality, though since the formal announcement occurred in mid-December, we won’t see the full impact until the December figures are in at the end of this month.
The other day, I characterised monetary conditions as boring – seems I might have spoken too soon. What is going on in the interbank and money markets? (RM millions)
Trading volume on the money market for 2012 (which covers MGS, T-Bills, BNM Bills, NIDs and BAs – I know, that’s a lot of acronyms) is a quarter below the average of 2011. December 2012 trading volume was just RM21.5 billion, which is less than half the average for 2012 – much of the drop has occurred in the last two months of the year.
I was looking at liquidity conditions, and found something interesting, but I’ll get to that in a bit. M1 growth decelerated sharply in October, although M2 showed a slight uptick in growth (log annual and monthly changes; seasonally adjusted):
Well, I’m back from my break and had a lovely time with family and friends – back to regularly blogging again.
Nevertheless, this wouldn’t have been my chosen topic, but with the budget little more than a month away, I suppose its understandable.
In a column yesterday at the Malaysian Insider, Azrul Mohd Khalib repeats all the same old myths about Malaysia’s government debt (excerpt; emphasis added):
Maxing out the national credit card
…Every national Budget over the past few years has had a deficit. When total national expenditure exceeds the revenue collected, a budget deficit then exists. The only way for the government to pay for this deficit is to borrow.
Teh Chi-Chang of Refsa was on BFM radio the other day promoting his new book:
I sometimes feel like I’m banging my head against a wall.
Local monetary conditions in May appeared to be a little tighter, though growth in M2 looks to be within a “normal” pace of activity (log annual and monthly changes; seasonally adjusted):
M1 growth crashed however on a monthly basis, largely from a drop-off in demand deposits. Broad money growth was better, but only due to higher savings deposits offsetting falls in other money substitutes, but particularly in forex deposits.
With the next Monetary Policy Committee meeting due exactly one week from today, it’s nice timing to have January 2012 data on hand to give us an idea of what likely moves are in store for monetary policy.
The bottom-line: nowhere fast. I don’t see anything that would prompt BNM to either cut rates or raise them. If anything, I’m starting to think the bias will be towards a rate hike going into the end of the year.
But that’s getting ahead of myself.
Now that we know interest rates aren’t going to be cut, at least until March, what did the latest data tell BNM?
The money supply situation doesn’t look too gloomy (log annual and monthly changes; seasonally adjusted):
In fact, it looks positively healthy to me – maybe even too healthy. Both M1 and M2 are growing at near 14% on an annual log basis, and monthly growth is pretty positive as well. Breaking it down, there were decent increases in pretty much all major categories except in forex deposits, which isn’t too surprising given the turmoil in global markets during the holiday period.
Quite unlike October, money supply in November rose largely based on higher FD’s but saw currency in circulation and current deposits fall (log annual and monthly growth; seasonally adjusted):
Money supply in October was a little schizophrenic – M1 growth rose sharply from higher demand deposits, but M2 growth dropped from lower FDs (log annual and monthly changes; seasonally adjusted):
Malaysian money supply growth accelerated through the quarter ended September, helped by a nice dose of extra fixed deposits and forex deposits (log annual and monthly changes; seasonally adjusted):
This is kinda an omnibus edition because I missed this post update the last two months. Not that the news gets any better with time…vinegar instead of wine so to speak (log annual and monthly changes; seasonally adjusted):
Growth of both M1 and M2 aggregates have been below the norm the last few months. If it weren’t for the spike in new cash issued for Ramadhan, the numbers might look even worse.
May was an odd month. Looking at the money and interest rate data, it’s hard to get a clear sense for what’s going on, because of the anomalies in the data. Take money supply growth (log annual and monthly changes;m seasonally adjusted):
Even as BNM began another tightening campaign, which appears to have impacted M1, broader money supply growth defied gravity and continued to accelerate. Monthly changes in M2 sustained at a pretty high growth level of close to 2%.
I had a rather urgent assignment to finish last week, hence the relative paucity of posting – to be honest, last week was a bit mad and not to mention highly stressful. Shame I can’t really talk about much of it.
Anyways, April’s monetary conditions was always going to be overshadowed by the BNM’s OPR move in early May, so you can’t really read too much into the numbers, unless its to validate Monetary Policy Committee’s rationale for raising interest rates.
You might find some evidence from M2 growth (log annual and monthly changes; seasonally adjusted):
I’m increasingly leaning towards the view that we might see a rate hike tomorrow, when BNM’s Monetary Policy Committee is scheduled to meet. The reasons aren’t hard to figure out – inflation is rising, and credit creation is probably above BNM’s comfort zone (and mine). I’d also consider that 1Q 2011 growth will probably come in stronger than people expect.
But I’m getting ahead of myself. Money supply growth on its own isn’t too excessive (log annual and monthly changes; seasonally adjusted):
Money supply growth was fairly steady over the course of the last half of 2010, but as we get into the Year of the Rabbit, things have changed (log annual and monthly changes; seasonally adjusted):
Seasonally adjusted M1 rose RM9.9 billion (RM 15.6 billion unadjusted) mainly from higher demand deposits and an unseasonally high cash injection. M2 growth accelerated as well from much the same factors, with the rest of the components rising marginally or not at all.
This post is over two weeks late, but what with CNY and other news taking centre stage, plus because this post looks at conditions near two months ago, I think that’s a little allowable.
Money supply growth was mostly stable in December, though seasonally adjusted annual M2 growth slowed to 6.9% in log terms (log annual and monthly changes; seasonally adjusted):
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):
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