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BNM maintains OPR at 1.75% at final monetary policy meeting for 2020.

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BNM maintains OPR at 1.75% at final monetary policy meeting for 2020.

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Bank Negara Malaysia (BNM) has made the decision to keep the Overnight Policy Rate (OPR) unchanged, indicating that the central bank is confident in its ability to navigate the monetary policy landscape if the need arises to support the economy's long-term outlook.To conclude the point given, the OPR was reduced to aid the economy's recovery from the COVID-19 pandemic.The government has set various measurement and action to help with the economic growth, rate of employment and inflation. Consumers may see an increasing trend in disposable income as a result of the 25 basis point reduction in funding costs, as loan repayments will be reduced.Consumers will have more expendable income, which will ultimately boost the domestic economy.This OPR reduction will benefit all the consumers where the loan interest is decreasing along with the OPR.
https://www.theedgemarkets.com/article/bnm-keeps-opr-175

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As we can see, we can conclude that OPR is one of federal reserve system (FED) tools under monetary policy which control the setting of the money supply by policy makers in central bank.Throughout this study the central bank has reduce the opr due to Covid-19 that became the main reason for the reduction was due to uncertainties in the global market, which can negatively impact our country.
Study shows that:
In 2016, the OPR was reduced from 3.25% to 3%, with the reduction of 25 basis points. This is the first reduction in seven years, as the previous cut was made in the year 2009. In 2009, the OPR was reduced to a historic low of 2% and was raised again in the year 2010 to 2.75%.

In 2011, the rate was increased again to 3% and was maintained till the year 2013. Meanwhile, from the year 2014 to 2015, the rate was set at 3.25%. Prior to 2009, the OPR was set at a historical high of 8.25% in the year 1998 during the recession and dropped drastically in the year 1999 to 3.25%.

Meanwhile, the ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively.

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Fasten your seatbelts, inflation is here

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Fasten your seatbelts, inflation is here

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The headline 1.7 percent increase in the Malaysia Consumer Price Index (CPI) for March was higher than the market's projection of a 1.6 percent increase. As we enter the second quarter, inflation readings are projected to rise, as Bank Negara Malaysia (BNM) has stated.The headline 1.7 percent increase in the Malaysia Consumer Price Index (CPI) for March surprised the market, as it was higher than the 1.6 percent increase predicted.As we enter the second quarter, inflation is expected to rise, as the Bank Negara Malaysia (BNM) has stated.The low base impact, according to BNM, will cause inflation to spike during this time.

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THE Malaysia Consumer Price Index (CPI) for the month of March was a surprise as the headline 1.7% reading was ahead of market forecast of 1.6% jump.

As we are now into the 2Q period, it is likely that inflation reading will be elevated as Bank Negara Malaysia (BNM) itself has highlighted this fact.

According to BNM, during this period, inflation will turn ugly mainly due to the low base effect from last year. BNM also has guided that headline inflation this year will average between 2.5% and 4% but core inflation, which excludes most volatile items of fresh food and administered prices of goods and services, will remain subdued at between 0.5% and 1.5%.

Why is rate of inflation accelerating?

For example, just looking at the brent crude oil price and retail pump prices in the 2Q of 2020 and this year, prices of brent crude is almost double while RON95 presently retails at RM2.05 per litre, although capped, is almost 50% higher than a year ago.

As we all know that transport sector itself has a 14.6% weight on the CPI and hence, a 50% rise in fuel prices on a y-o-y basis will indeed cause inflation readings to go out of whack in the coming months. For March 2021, the transportation segment alone saw a 9.8% y-o-y increase.

In fact, these phenomena is not restricted to Malaysia alone, CPI is expected to rise across the world, driven not only by higher pump prices due to the low base effect, but the rise of all sort of raw materials, commodities and input cost.

As a result, even Producer Price Index (PPI) has turned positive in most economies and set to rise even further in the coming months.

In the US, the recent reading of both the CPI and PPI was at 2.6% and 4.2% y-o-y respectively. Both the CPI and PPI increases were the strongest in nine years. Out of China, latest CPI showed an increase of a modest 0.4% while PPI surged by 4.4% y-o-y last month, with PPI producer surging by as much as 5.8% y-o-y.

For the US, driving the hike in the March CPI, which was above expectations, was of course the gasoline index, which rose by 9.1% in March and accounting nearly half the CPI jump in the month of March. Minus the energy and food, in what is referred to as core CPI, the rate of increase came in 1.3%, a figure which was seen to be within expectations.

For the Fed, what it is watching is the Core Personal Consumption Expenditure Price Index (PCE). PCE is rather broad-based as it takes into account what businesses are selling, substitution effect and as well as weight effect of items in the index.

The target for the Fed is 2% for the Core PCE and the last reading in the month of February, the Core PCE came in at 1.41%. Hence, if we take the Core CPI in February at 1.53%, the core PCE is lower by about 12bps.

Historically, core PCE is always lower than core CPI by about 30bps. While we may see core PCE rising over the next few months, the challenge is to understand the drivers of the increase.

Is inflation demand pull or cost push?

Before answering the question as to whether the inflation data are demand pull or cost push, economists would first consider whether the data is driven by the base effect phenomena.

We could all agree that due to the pandemic outbreak in early March 2020 and the significant knock-on impact coming from lockdowns and economic shutdowns, most economic data points were depressed either in the month of March 2020 itself or the subsequent months, especially in the 2Q period of 2020.

Even oil prices, at least as far as the futures market was concerned, went into negative price - something that nobody would think could ever occur. Hence, to a large extent, the base effect is going to play havoc in a lot of economic data points, be it inflation, GDP data, export numbers, retail sales and so forth. This was rather evident when China released their 1Q GDP data that showed the economy expanding by 18.3% compared with a year ago.

The inflationary pressure today could lead to a demand pull inflation on several counts.

First, especially in the US, is the pay cheques that were dished out last month. This is fuelling demand at the consumers' end where it is driving not only retail sales but also consumption of goods and services and large ticket items like homes and automobiles.

Second, although we may be in the new wave of covid-19 pandemic globally, in the US, the successful inoculation, is causing a pent-up demand for good and services too as the general population feels that their lives is back to "normal" and are willing to spend. This demand pull inflation could cause prices to increase in the economy and thus, lead to higher inflation in the coming months.

As mentioned earlier, the increase in PPI too is worrying and that is more so due to the rise in raw material prices, perhaps soon-to-be tighter labour market as well. The 916,000 non-farm payrolls figure for the month of March was mind blowing as the US economy added more jobs, especially as the economy is now on an accelerated recovery mode.

One doesn't have to go far to see the effect of raw material prices as even the Bloomberg Commodity Index (BCI) itself is up almost 13% year-to-date. Some big moves, other than the 27% increase in oil prices, include the jump in lumber prices by more than two-thirds and most metal prices, other than gold and silver, which are higher by between 13-22% year-to-date. If one were to compare to a year ago, price gains are even more telling with the BCI itself higher by close to 45%.

With higher input cost, producers would have no choice but to raise prices at the wholesale level to maintain their margins and hence the price increases will trickle down the supply chain, resulting in higher retail prices.

This will inevitably will lead to higher inflation reading. Hence, globally, rates are set to increase. From the base effect inflation, to demand pull inflation and finally a cost push inflation.

For the US, headline CPI, PCE, core inflation and core PCE are set to rise to well beyond the 2% mark and it will be telling what the Fed's response going to be when this occurs.

As it is, the benchmark 10-year US treasuries were last seen at 1.56%, well below the recent high of 1.77% as markets were calmed by Fed's comments on inflation expectations, which in their books is expected to be transitory.

Nevertheless, the 10-year breakeven inflation rate remains elevated at 2.33% which basically signals markets uneasiness of inflation expectations going forward.

For now, market expectations of a rate hike could occur as early as next year while the Fed itself does not see the need well into 2023 or even in 2024 for that matter.

These expectations are obviously not cast in stone and based on the inflation trajectory over the next few months, the Fed or even the market, may have no choice but to bring forward rate hikes sooner than expected.

Higher rates calls for portfolio rebalancing

With rate hikes on the horizon, markets may be in for a surprise as investors would need to adjust their overall portfolio allocation under this scenario. For equity investors, rate hikes are negative market developments, more so for the tech sector and start-ups. The years of easy money may be coming to an end and it has to as we have built-up too much of asset price bubbles in the system.

From current bitcoin price of US$50,000 per coin to the market value of parody coin like dogecoin, which is even more than that of Maybank's market capitalization, to Non-Fungible Tokens (NFTs) values created out of nothing, it seems we are in big bubbles and in the world of finance, this has little sense.

For bond investors, especially for the US treasuries, the short-end of the curve has been depressed for a long time and with the anticipated rise in rates, short-term rates too will start to move up. Investors positioned on the longer duration too could be faced with uncertainty as 10yr US treasuries looks set to move above 2% mark within the next six to nine months.

Hence, any rally on the 10yr US treasuries is an opportunity to take profit and reduce the duration exposure at the long end, for now. Once the rates stabilise at above 2% on the US treasuries, the duration play should be back in play as yield hunting investors are likely to bargain hunt at this level.

For borrowers, with rates expected to rise from now on, they would be better off switching from floating rate to fixed rates and lock-in their cost of funds.

What about Malaysia's OPR?

Firstly, BNM has already guided that inflation is expected to rise this year and the key is the core rates that the central bank is looking at. With expectations that the core rate will remain between 0.5-1.5%, there is little pressure for BNM to raise rates this year. Nevertheless, if the demand pull and cost push inflationary pressures are consistent in the coming months, BNM would perhaps need to re-look at its own forecast, especially in relation to the core inflation rate.

Secondly, inflation expectations or realized inflation rate will not be the sole determinant factor for BNM to raise rates for now as the economy is just about the show positive data points. This trend will likely continue in the next 3-6 months due to the base effect impact as well as some real aggregate demand growth.

All in, the Malaysia's Overnight Policy Rate (OPR) will likely stay at 1.75% for the rest of 2021. Going into 2022, the expectations of a rate hike will likely start to build-up and hence, investors would need to start to adjust their portfolio allocation accordingly and time to fasten our seatbelts as inflation is here.

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Fasten your seatbelts, inflation is here

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THE Malaysia Consumer Price Index (CPI) for the month of March was a surprise as the headline 1.7% reading was ahead of market forecast of 1.6% jump. As we are now into the 2Q period, it is likely that inflation reading will be elevated as Bank Negara Malaysia (BNM) itself has highlighted this fact.

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According to what I have study.Inflation was cause by the price increases.This will cause the Aggregate demand curve will shift to the left due to the price increase that decrease the consumer spending.

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After a dramatic rise in recent months, consumer confidence in the United States remained virtually unchanged in May. Consumers' assessments of current conditions have improved, implying that economic growth will remain strong in Q2. Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July. Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens. In May, consumers' assessments of current conditions improved. Consumers who say business circumstances are "excellent" have decreased from 19.4 percent to 18.7 percent, while those who say business conditions are "poor" have decreased from 24.5 percent to 21.8 percent. The consumer's opinion of the labour market has improved. The percentage of consumers who feel jobs are "plenty" has increased from 36 percent to 40 percent. Consumers who believe jobs are plentiful increased from 36.3 percent to 46.8%, while those who believe jobs are difficult to come by decreased from 14.7 percent to 12.2 percent.

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NEW YORK, May 25, 2021 /PRNewswire/ -- The Conference Board Consumer Confidence Index® held steady in May, following a gain in April. The Index now stands at 117.2 (1985=100), down marginally from 117.5 in April. The Present Situation Index-based on consumers' assessment of current business and labor market conditions-increased from 131.9 to 144.3. However, the Expectations Index-based on consumers' short-term outlook for income, business, and labor market conditions-fell to 99.1 in May, down from 107.9 last month.

The monthly Consumer Confidence Survey®, based on an online sample, is conducted for The Conference Board by Toluna, a technology company that delivers real-time consumer insights and market research through its innovative technology, expertise, and panel of over 36 million consumers. The cutoff date for the preliminary results was May 19.

"After rebounding sharply in recent months, U.S. consumer confidence was essentially unchanged in May," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "Consumers' assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers' short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead. Consumers were also less upbeat this month about their income prospects-a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July. Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens."

Consumers' appraisal of current conditions improved in May. The percentage of consumers claiming business conditions are "good" fell from 19.4 percent to 18.7 percent, but the proportion claiming business conditions are "bad" also declined, from 24.5 percent to 21.8 percent. Consumers' assessment of the labor market improved. The percentage of consumers saying jobs are "plentiful" climbed from 36.3 percent to 46.8 percent, while those claiming jobs are "hard to get" declined from 14.7 percent to 12.2 percent.

Consumers' optimism about the short-term outlook waned in May. The percentage of consumers expecting business conditions to improve over the next six months fell from 33.1 percent to 30.3 percent, while the proportion expecting business conditions to worsen rose from 12.1 percent to 14.8 percent. Consumers were also less upbeat about the job market. The proportion expecting more jobs in the months ahead fell from 31.7 percent to 27.2 percent, while those anticipating fewer jobs rose from 14.4 percent last month to 17.3 percent in May. Regarding short-term income prospects, 14.5 percent of consumers expect their incomes to increase in the next six months, down from 17.4 percent in April. The proportion expecting their incomes to decrease also fell, from 10.5 percent in April to 9.3 percent in May.

NOTE: The May 25, 2021 release of The Conference Board Consumer Confidence Index® is the first based on survey data collected online. Data has been restated back to January 2021, the effective changeover month; no other data revision was necessary. Click here for a Technical Note with complete details.

Source: May 2021 Consumer Confidence Survey®
The Conference Board / Release #8078

The Conference Board publishes the Consumer Confidence Index ® at 10 a.m. ET on the last Tuesday of every month. Subscription information and the technical notes to this series are available on The Conference Board website: https://www.conference-board.org/data/consumerdata.cfm.

About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org.

SOURCE The Conference Board

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NEW YORK, May 25, 2021 /PRNewswire/ -- The Conference Board Consumer Confidence Index ® held steady in May, following a gain in April. The Index now stands at 117.2 (1985=100), down marginally from 117.5 in April. The Present Situation Index-based on consumers' assessment of current business and labor market conditions-increased from 131.9 to 144.3.

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As we can see, if the consumer confidence is increasing so the Aggregate Demand curve will shift to the right.This are causes by the hinger and rapid spending and investment by the consumers.

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Expansionary fiscal stance is the need of the hour — economists

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Expansionary fiscal stance is the need of the hour — economists

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The government can increase its debt level to improve people's well-being and keep the country's economic recovery plan on track, but spending must be cautious.The revised deficit target was not surprising, according to economists, because the government needs to be ahead of the curve in terms of giving support and stimulating the economy when the economy slows. The nature of the shocks that the country is currently experiencing, according to Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid, has stemmed from the health crisis, which will take time to dissipate.In that respect, he said, the government would have to determine the correct priorities, and efforts to close the budget gap would have to be put on hold in this case. It is not so much about the government's borrowing capacity as it is about what programmes can really help the rakyat navigate the current challenges, particularly those who have been out of work and SMEs and other businesses that are struggling to service their debts, pay rent or other expenses due to cash flow problems.

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KUALA LUMPUR (May 28): The Government can bump up its debt level to improve the wellbeing of the people and ensure that the country's economic recovery agenda is on track, but the spending has to be prudent.

Economists feel that the deficit target revision was not unexpected as the Government currently needs to be ahead of the curve with respect to providing support and stimulate the economy amid a slowing pace in investments from the private sector.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the nature of the shocks that the country is facing at the moment has emanated from the health crisis, which would take time to subside.

In that sense, the Government would need to set the right priorities, and in this instance, plans to reduce the budget gap would need to be put on hold, he said.

"It is not so much about the Government's capacity to borrow, but rather what the programmes are that can really help the rakyat navigate the current challenges especially those who have been out of job and Small and Medium Enterprises (SMEs) and other businesses which are struggling to service their debts, pay rent or other expenses due to cash flow problems," he told Bernama.

The Ministry of Finance (MoF) yesterday announced that the deficit target has been revised to 6% from 5.4% of Gross Domestic Product (GDP) for 2021, having factored in continuing measures from 2020 economic stimulus packages, as well as the PERMAI and PEMERKASA packages launched in the first quarter of this year.

Consequently, the Federal Government's statutory debt is also estimated to increase from 58% in 2020, to 58.5% by end-2021.

"This is still below the statutory limit of 60%, which was approved by Parliament in August 2020.

"The country's debt profile remains favourable with more than 90% of Government debt denominated in ringgit, supported by ample domestic liquidity and long maturity issuances which support funding flexibility," the MoF said in a statement after The Fiscal Policy Committee meeting chaired by Prime Minister Tan Sri Muhyiddin Yassin.

In a study done by Bank for International Settlements, the threshold for the government debt before it becomes a drag to economic growth is 85% of GDP.

According to Mohd Afzanizam, the Government has the ability to raise funds from the capital market.

"Thus far, the response from the market whenever the Government issues the Malaysian Government Securities (MGS) or Government Investment Issues (GII)...they are constantly oversubscribed, suggesting there is good demand from the bond/sukuk investors," he said.

In terms of spending, Professor Datuk Dr Shazali Abu Mansor, an economic analyst at Asia e University, said the Government must allocate the money for immediate expenses that involve small-scale projects nationwide such as repair works for drains, repainting of school buildings and restoring Internet services.

As for financial assistance for the people, he said daily-paid workers should be the top priority.

"It is okay to have a high debt (during this pandemic) but the Government must be accountable. The more we spend, the faster the economy can expand," he said.

Shazali hoped the borrowings are within the country as much as possible to maintain a circular economy and to avoid the depreciation of ringgit due to fund outflows.

Besides increased borrowings, he suggested the Government to consider raising income through the tax system - increase the tax rate among the Top 20 income category, implement windfall tax on industries that benefit greatly from the Covid-19 crisis, and reintroduce the Goods and Services Tax (GST) but on selected items.

Meanwhile, Sri Murniati Yusuf, a public finance manager at the Institute for Democracy and Economic Affairs, said when the Government decided to go for a higher debt level, the allocation for servicing the debt would be even higher.

As a consequence, a higher debt allocation would impact the allocation for other important needs in the future such as maintaining schools, hospitals and roads.

"Of course, we have to note that this percentage does not automatically increase with the increase of debt.

"It can decrease if the economy grows better and government raises more revenue. Economic growth, therefore, is one of the key factors in keeping debt sustainable," she said.

In addition to providing assistance to the vulnerable, she believes the Government should have effective policy measures to reduce the digital divide across regions and general regional disparities that the Government has been trying to address in the past decades.

Effective policy measures would require the Federal Government to work closely and in coordination with the State governments, she said.

"The success of policy measures to tackle the current pandemic and restore the economy after the crisis will require close coordination between these two levels of governments," she added.

The International Monetary Fund, in its Fiscal Monitor April 2021 report, revealed that government deficits and debt have risen to unprecedented levels, given major fiscal support, along with a sharp fall in revenues caused by contractions in output.

It said average overall fiscal deficits as a share of GDP in 2020 reached 11.7% in advanced economies, 9.8% in emerging market economies, and 5.5% in low-income developing countries.

Global public debt climbed to 97.3% of GDP in 2020, a surge of 13 percentage points from the level projected before the pandemic.

The report noted that many emerging market and developing economies have faced borrowing constraints, particularly those economies with elevated debt, large gross financing needs, and a high share of external or foreign-currency-denominated debt.

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Expansionary fiscal stance is the need of the hour - economists

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The Government can bump up its debt level to improve the wellbeing of the people and ensure that the country's economic recovery agenda is on track, but the spending has to be prudent.

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As we se this study related to the fiscal policy which bring the meaning of government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.On top of that:

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.

Using a mix of monetary and fiscal policies, governments can control economic phenomena.

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More find jobs but unemployment rate remains high, says govt

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More find jobs but unemployment rate remains high, says govt

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The unemployment rate remained high in the first quarter of 2021, despite the fact that the number of employed people increased by 0.2 percent in February compared to January, according to the Statistics Department. There has been an increase in labour demand as a result of more firms being allowed to operate during MCO 2.0 and schools reopening across the country refer Chief statistician Mohd Uzir Mahidin. Employment in the manufacturing and construction industries grew month over month as well. Following a rising trend in global oil prices, it was predicted that inflation would force prices of products and services to rise in the coming months.Despite the introduction of MCO 2.0 and conditional MCO in practically all states, the cheif claimed the figures for the first two months of 2021 showed “a route towards recovery.”

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PETALING JAYA: The unemployment rate remained high in the first quarter of 2021 although the number of employed persons continued to record marginal growth of 0.2% in February compared to January, the Statistics Department said.

Chief statistician Mohd Uzir Mahidin said employment in the manufacturing and construction sectors also continued to register positive month-on-month growth.

"With more businesses permitted to operate during MCO 2.0 and schools reopening throughout the country, there has been an increase in labour demand," he said in a statement, referring to the second round of the movement control order.

Uzir expected inflation to cause prices of goods and services to go up in the coming months following an upward trend in global oil prices.

He said the statistics for the first two months of 2021 indicated "a path towards recovery" despite the implementation of MCO 2.0 and the conditional MCO in nearly all states.

The Industrial Production Index (IPI) grew by 1.5% in February, an increase driven by the manufacturing index which grew at 4.5%.

He said Malaysia's merchandise trade continued to expand, with both exports and imports recording double-digit growth over the same month in 2020.

"Exports recorded the strongest year-on-year growth in 28 months, contributed by the expansion in domestic exports and re-exports."

The price of crude palm oil marked the highest level in the past 13 years, and has the potential to remain high, in line with the current positive market sentiment, he said.

Rubber production, however, saw a marginal decline when compared to February 2020.

However, month-on-month comparison showed an increase in the commodity's production following the activation of the Rubber Production Incentive (IPG) scheme nationwide to assist smallholders.

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More find jobs but unemployment rate remains high, says govt

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PETALING JAYA: The unemployment rate remained high in the first quarter of 2021 although the number of employed persons continued to record marginal growth of 0.2% in February compared to January, the Statistics Department said. Chief statistician Mohd Uzir Mahidin said employment in the manufacturing and construction sectors also continued to register positive month-on-month growth.

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The unemployment rate is the proportion of the labor force that is not currently employed but could be.To my recommendation in the point of student people should be fighting togather to make a safer and robust enviroment that by following given SOPs.This will ensure that the economic sector reopen with stable base that open more oppurtunity for the unemployment.