November 2013 Monetary Conditions

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.

Containing Housing Price Appreciation: Assessing The Options

There’s a growing body of work examining the effect of macroprudential policies on asset prices. This one offers a fairly comprehensive assessment (abstract):

Can Non-Interest Rate Policies Stabilize Housing Markets? Evidence from a Panel of 57 Economies
Kenneth N. Kuttner, Ilhyock Shim

Using data from 57 countries spanning more than three decades, this paper investigates the effectiveness of nine non-interest rate policy tools, including macroprudential measures, in stabilizing house prices and housing credit. In conventional panel regressions, housing credit growth is significantly affected by changes in the maximum debt-service-to-income (DSTI) ratio, the maximum loan-to-value ratio, limits on exposure to the housing sector and housing-related taxes. But only the DSTI ratio limit has a significant effect on housing credit growth when we use mean group and panel event study methods. Among the policies considered, a change in housing-related taxes is the only policy tool with a discernible impact on house price appreciation.

How To Spin With Statistics

Here’s a model article for all budding analysts and pundits out there (excerpt):

Malaise Is Ahead For Malaysia's Bubble Economy

I recently wrote about how Indonesia’s economy has devolved into a classic credit and asset bubble-driven growth story, and its neighbor Malaysia is on the same path along with most other Southeast Asian economies, which are part of the overall emerging markets bubble that I have been warning about in the last couple of years.

March 2013 Monetary Conditions

Apropos of the Monetary Policy Committee Meeting last week, monetary conditions in Malaysia for 2013 up to March mirror developments in prices and incomes (log annual and monthly changes; seasonally adjusted):

December 2012 Monetary Conditions

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.

November 2012 Monetary Conditions

One of the toughest challenges a writer can face is overcoming writer’s block – it’s hard to start writing again once you’ve stopped for a while. It’s even harder when there’s not much to write about, as Malaysian data over the past couple of months have been indicating an economy that’s been cruising along (in other words, b-o-o-oring).

So here’s my attempt at getting things going again. There’s all sorts of stuff I plan on covering, but it might take a while to get around to all of them, especially with my present work load (I’m currently working, among other things, on a country profile for a GCC member – not exactly helpful for thinking about the Malaysian economy).

In any case, here goes:

October 2012 Monetary Conditions

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):

September 2012 Monetary Conditions

I haven’t done one of these in quite a while, mostly through sheer lack of time, but given the upcoming Monetary Policy Committee meeting this Thursday, now is as good time as any to reboot.

Over the last quarter, broad money supply growth has fallen off (log annual and monthly changes; seasonally adjusted):

May 2012 Monetary Conditions

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.

April 2012 Monetary Conditions [Updated]

Well, I’m back from my break, recharged but thoroughly unrested

But on to last week’s monetary data release from BNM. I haven’t done one of these for a while, as (1) little substantive has changed; and (2) while I’ve been updating the data, I’ve lacked the time to publish a review in a timely manner. Old news is stale news as they say.

Nevertheless, things are heating up (metaphorically) in a monetary sense. With Europe back in the news, China showing signs of a slowdown, and US recovery losing steam, it’s back to global risk aversion again. And that means global capital outflows into US treasuries (notice that gold hasn’t budged).

We’re only seeing a few signs of this locally though, as money supply growth is pretty stable (log annual and monthly changes; seasonally adjusted):

Reserves, Deposits and Loans

Some days I feel like tearing my hair out. It seems like so many people are living in a past that just doesn’t exist anymore. It’s one thing for a layman not to grasp the intricacies of macro-economics – but its quite another for analysts and economists to make basic mistakes. And even worse if its a policy maker.

I fully understand how Hafiz Noor Shams feels.

January 2012 Monetary Conditions

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.

December 2011 Monetary Conditions

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.

November 2011 Monetary Conditions

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):

October 2011 Monetary Conditions

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):

BNM Clampdown

I've just had an accident with my laptop - involving a full mug of tea - so I might be offline for a while until I can resolve the problem.
In the meantime, along with the GDP report last week, BNM made two announcements. The first one deals with regional financial integration (excerpt):

Broadening Regional Financial Collaboration

Bank Negara Malaysia will be expanding the list of eligible collateral following greater regional financial integration. This is aimed at enhancing the liquidity management framework. This is in line with the growing significance of regionally active financial institutions which have intensified the financial inter-linkages between economies, particularly in trade, investment and financial services.

In essence, what it means is that BNM is laying the groundwork for financial settlement of cross-border transactions in anything other than US dollars, to go along with the existing swap line arrangements between the region's central banks. Since this means that intraregional trade need not be denominated in US dollars (which requires US dollar liquidity domestically), it also lessens the necessity for keeping excessive US dollar reserves. Malaysia's direct trade with the US is just 10% of total trade, whereas regional trade ex-Japan is at nearly 60%. Recall that the recession of 2008-2009 in Malaysia wasn't really a factor of a drop in real external demand, but a serious drop in US dollar liquidity from flight to safety and a sharp drop in trust within correspondant banking networks.

September 2011 Monetary Conditions

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):

August 2011 Monetary Conditions

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.

April 2011 Monetary Conditions

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):

March 2011 Monetary Conditions Update

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):