Showing posts with label BNM. Show all posts
Showing posts with label BNM. Show all posts

Saturday 22 April 2023

Trade-off of limited interest rate hikes by Bank Negara

 Bank Negara’s tempered OPR hikes limit interest rate risks for banking system …

… but there is a trade-off



As with everything in life, there is a trade-off. And as we have always said, there is no free lunch in economics. 

  • First, savers could have obtained more had interest rates gone higher. With high inflation, savings are now earning negative real rates (that is, below inflation) (see Chart 5).
  • Second, the trade-off is a weaker ringgit and higher cost of living for all Malaysians. 

The interest rate is the price of money (or credit or time, if one is inclined to be argumentative) — and it certainly is one of the major drivers in foreign exchange movements (see Chart 6); although this relationship is by no means linear or perfect. 

  • Can a country maintain a relatively low interest rate while also stabilising its exchange rate?  
  • Is the weak ringgit a function of the interest rate differentials between the ringgit and other currencies or are there even more dominant factors? 


Thursday 23 April 2020

Federal govt has limited fiscal space



POSTED ON APRIL 13, 2020, MONDAY




KUCHING: Malaysia’s stimulus package is larger compared with other major Asean economies, but analysts cautioned that the federal government now has limited fiscal space.


The research arm of Kenanga Investment Bank Bhd (Kenanga Research) observed that in terms of share of GDP, Malaysia’s stimulus package is relatively large compared with other Asean economies, standing at 17.6 per cent of GDP, while Singapore’s stood at 12 per cent, Thailand at 12 per cent and Indonesia at 2.5 per cent.



“Although it may have additional support measures should the pandemic situation worsen, hindering economic activities for a prolonged period, we view that the federal government has limited fiscal space,” Kenanga Research said.

“Generally, a fiscal stimulus could come from budget surplus or, in some cases, a drawdown from a national reserves.

“But, if a country’s balance sheet is still saddled with a deficit then issuing debt to finance the stimulus may only be the main option.”

Meanwhile, Kenanga Research highlighted that with a forecast debt of RM869 billion by end-2020 and an estimated outstanding debt as at March 2020 of RM822.5 billion, the balance of net debt issuance for the remainder of the year is around RM46.5 billion.

The research arm noted that this registered below the leftover debt space at an estimated RM61.7 billion, allowing the government to maintain its compliance to the aforementioned debt limits.


“In fact, the government still have a remaining fiscal space of about RM15.2 billion (one per cent of GDP), should the need for additional fiscal injection arises.

“Malaysian government debt remains attractive among investors amid low interest rate environment in the advanced economies.

“In 2019, the government issued RM135.2 billion gross debt comprising 94.5 per cent of domestic borrowings and another 5.5 per cent of foreign borrowing (samurai bond).


“It is worth noting that the government received RM190.9 billion bid within the first eight months in 2019, far larger than the amount of total gross debt needed.”



Based on the current deteriorating economic condition and market sentiment, this year, the research arm expected gross debt issuance to register between RM130 billion and RM150 billion.

According to Kenanga Research, from the liquidity perspective, data suggests that the banking system condition remains conducive, with adequate funds to support financial intermediation.


It further highlighted that outstanding excess liquidity placed with Bank Negara Malaysia (BNM) was at RM156 billion, as at March 2020.

This could be expanded further, as the research arm viewed that the BNM has a room to lower the Statutory Reserve Requirement ratio (SRR) by another 100 basis points (bp) to match the Global Financial Crisis-low of one per cent (March 2009), releasing an estimated RM17 billion (1.1 per cent of GDP) worth of liquidity into the market.

“This gives a rather sizeable impact as the statutory deposits account for almost 30 per cent of the excess liquidity.

“Of note, previously in March, the SRR was reduced by 100bp to two per cent and dealers were granted flexibility to recognise Malaysian Government Securities (MGS) and Malaysian Government Islamic Issues (MGII) of up to RM1 billion as part of the SRR compliance.

“BNM estimated the move to result in a RM30 billion, two per cent of GDP, worth of liquidity injection into the system.”

Kenanga Research went on to highlight that banking system deposits held by statutory agencies amounted to RM78.2 billion, as at February 2020.

The research arm also noted on temporary BNM financing, whereby section 71 of the Central Bank of Malaysia Act 2009 allows the BNM to extend temporary financing (maximum 12.5 per cent (RM30.6 billion) of the projected revenue (RM244.5 billion as stated in the federal government’s budget tabled in the Parliament) to the government due to revenue deficiencies.

“The government is obligated to repay BNM no later than three months after the end of the financial year the financing was made and BNM cannot extend any further temporary financing until the outstanding amount is fully repaid.”

On another note, against the backdrop of an unprecedented economic downturn and premising on the national reserves’ purpose of supporting the country, not only during a financial crisis, but also in the event of a national disasters or emergencies, Kenanga Research opined that Malaysia could perhaps emulate Singapore’s best practice of managing its reserves.

The research arm recapped that Singapore is among the few if not the only country in the world that has so far tapped into its national reserves to support its economy and to combat the negative impact brought about by the Covid-19 pandemic.

“Perhaps there is a need to relook, among others, at section 68 of the Central Bank of Malaysia Act 2009, whereby it broadly states that BNM shall hold and manage the foreign reserves in line with the policies and guidelines established by the Board.

“More empathy on the welfare of the people or rakyat should be considered as part of the policy objectives in times of need apart from playing a role to ensure a stable and sound financial system.”


https://www.theborneopost.com/2020/04/13/federal-govt-has-limited-fiscal-space/

Wednesday 23 March 2016

Bank Negara Malaysia 2015 Annual Report

http://www.bnm.gov.my/files/publication/ar/en/2015/BNMAR2015_slides.pdf

http://www.bnm.gov.my/files/publication/ar/en/2015/ar2015_en.pdf

















Outlook for the Malaysian Economy in 2016 

The international economic and financial landscape is likely to remain challenging in 2016 and will be a key factor that will influence the prospects of the Malaysian economy. Depending on their nature, global developments can pose both upside and downside risks to the Malaysian economic growth. The Malaysian economy is expected to grow by 4.0 – 4.5% in 2016. Domestic demand will continue to be the principal driver of growth, sustained primarily by private sector spending. Private consumption growth is expected to trend below its long-term average, reflecting largely the continued household adjustments to an environment of higher prices and greater uncertainties. These moderating effects, however, will be partially offset by continued growth in income and employment, as well as some support from Government measures targeted at enhancing households’ disposable income. In an environment of prolonged uncertainties and cautious business sentiments, private sector investment growth is projected to be slower compared to its performance in the past five years. Capital expenditure in the upstream mining sector will continue to be affected by the environment of low energy and commodity prices. Support to private sector capital spending will mainly stem from the implementation of on-going and new investment projects, particularly in the manufacturing and services sectors.

 Reflecting the Government’s commitment to more prudent spending, growth of public sector expenditure is also expected to be more moderate but would continue to be supportive of overall growth. Public investment is, however, projected to turn around to register a positive growth, reflecting higher spending by the Federal Government on fixed assets and the continued implementation of key infrastructure projects by public corporations. The external sector is expected to remain resilient in 2016. Despite subdued commodity prices, Malaysia’s export performance is projected to remain positive, in line with the modest improvement in external demand. The well diversified nature of Malaysia’s exports will continue to support the overall growth in exports. Gross imports are projected to expand further amid an increase in intermediate imports to support the sustained performance of manufactured exports and the higher growth in capital imports due to continued expansion in domestic private investment. The overall trade balance in 2016 is expected to continue to record a surplus, albeit one that is smaller. The services account is projected to record a narrower deficit on account of an expected improvement in tourism activity. Overall, the current account surplus is projected to narrow further to 1.0 – 2.0% of gross national income (GNI). On the supply side, all economic sectors are projected to expand, albeit at a more moderate pace in 2016. The services and manufacturing sectors will remain the key drivers of overall growth. Despite the lower oil and gas prices, growth in the mining sector will be supported by new gas production capacity. Growth momentum in the construction sector is projected to moderate slightly in 2016 amid a modest expansion in both the residential and non-residential sub-sectors. Headline inflation is projected to be higher at 2.5 – 3.5% in 2016 (2015: 2.1%), due mainly to increases in the prices of several price-administered items and the weak ringgit exchange rate. However, the impact of these cost factors on inflation will be mitigated by the low global energy and commodity prices, generally subdued global inflation and more moderate domestic demand. The trajectory of inflation during the year, however, could be more volatile given the uncertainties relating to global oil and commodity prices as well as the pace of global growth.


Economic and Monetary Management in 2016 

Monetary policy in 2016 will focus on ensuring that monetary conditions remain supportive of sustainable domestic growth with price stability, taking into consideration the evolving risks in the external and domestic environments. In particular, global economic and financial developments will need to be closely monitored and assessed in terms of their implications for the domestic growth and inflation outlook. Monetary policy will also continue to take into account the risk of financial imbalances. In addition, given the expectation of continued volatility in external flows, the Bank’s monetary operations will be directed towards ensuring that domestic liquidity in the financial system will remain sufficient to support the orderly functioning of the domestic financial markets. Fiscal policy in 2016 will continue to focus on fiscal consolidation. The 2016 Budget was recalibrated in January 2016 to incorporate the expected decline in global oil prices. 
Government spending was reprioritised and measures were introduced to broaden revenue sources. Fiscal spending will be prioritised towards high impact infrastructure projects that could have large multiplier effects by increasing the productive capacity of the economy. In addition, emphasis will continue to be accorded towards ensuring inclusive and sustainable growth through welfare enhancements, particularly in the form of socio-economic support to the lower- and middle-income segments to help them cope with the rising cost of living. Given the expectation of a challenging global financial environment, Malaysia will likely be confronted by volatile movements in capital flows. However, Malaysia’s deep and developed financial markets are well-positioned to intermediate these flows, thus ensuring that the functioning of the domestic financial markets will continue to be orderly and supportive of the real economy. Malaysia’s ability to withstand external shocks will also be augmented by its ample buffers and robust policy frameworks that have been steadily built over time. 

Thursday 4 November 2010

BNM: Maximum loan-to-value (LTV) ratio of 70% for 3rd home loan

Written by Joseph Chin
Wednesday, 03 November 2010 17:33


KUALA LUMPUR: Bank Negara Malaysia is imposing with immediate effect the maximum loan-to-value (LTV) ratio of 70% for the third house financing facility taken by a borrower as it seeks to curb "excessive investment and speculative activity in the residential property market".

The central bank said on Wednesday, Nov 3 the move was expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations.

“This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers," it said.

Bank Negara said the financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies.

“The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public,” it said.



Below is the entire statement issued by Bank Negara:

Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households

Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility taken out by a borrower. Financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies. The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public.

At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels. This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices. In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature.

The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations. This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers. This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.

Introduction of the Financial Capability Programme

As part of the continuous efforts to raise the level of financial literacy and to promote sound financial and debt management by Malaysians, Bank Negara Malaysia also wishes to announce the introduction of the Financial Capability Programme. This Programme will be offered by Agensi Kaunseling dan Pengurusan Kredit (AKPK) through its establishments nationwide and will commence from January 2011. The Programme is aimed at equipping individuals with important knowledge for responsible financial decisions by gaining practical understanding and skills in money and debt management. This in turn will contribute towards preserving the sound financial positions of households and ensure that debt accumulation is commensurate with household affordability, including their ability to absorb interest rate adjustments and potential volatility to income and expense levels. Individuals particularly new prospective borrowers and young adults are strongly encouraged to participate in this specially designed programme. The details of the implementation of the Financial Capability Programme will be announced later in December this year.



Bank Negara Malaysia

3 November 2010


http://www.theedgemalaysia.com/business-news/176537-flash-bnm-maximum-loan-to-value-ltv-ratio-of-70-for-3rd-home-loan.html

Thursday 8 July 2010

Bank Negara ups OPR by 25bps to 2.75%

Written by Joseph Chin
Thursday, 08 July 2010 18:11


KUALA LUMPUR: Bank Negara raised the Overnight Policy Rate (OPR) by 25 basis points to 2.75% at the Monetary Policy Committee (MPC) meeting on Thursday, July 8.

"The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.50% and 3% respectively," it said.

The central bank said the MPC considered the new level of the OPR to be appropriate and consistent with the current assessment of the growth and inflation prospects.

It also said the stance of monetary policy continues to remain accommodative and supportive of economic growth.

On the domestic economy, it said recent trends in industrial production, financing activity, labour market conditions and external trade indicate that economic activity has remained robust in the second quarter.

"Going forward, while external developments may result in some moderation in the pace of growth, the domestic economy is expected to remain strong with continued improvements in private consumption and investment, and augmented by public investment spending," it said.

Domestic inflation recorded modest increases in April and May, mostly on account of supply factors.

Bank Negara said prices were expected to rise at a gradual pace in the coming months, in line with the continued improvement in domestic economic conditions, and taking into account possible adjustments in administered prices.

"Overall, inflation is, however, expected to remain moderate going into 2011," it said.


http://www.theedgemalaysia.com/business-news/169531-flash-bank-negara-ups-opr-by-25bps-to-275.html