WIll BLR in future increase from 6.75% or lower?

Since the economy is slowing down, will the BLR increase? But mention that malaysia can sustain the down fall with alot of excess. Rumors and talking, just wait and see how.

if the BLR increase will it hurt consumers. have to pay more interest for those loans taken up and to what percentage. will it increase to as high as 12% as history recorded. when it goes up can see alot of people selling houses/car which cannot sustain the interest on the loan. property market will go down bcos too many already in market over produce. a glut in fact eg like shopping komplexes here and there. a lot of it vacant due to expensive rental etc

Will the BLR go down?

As a lot of hidden bad debt have not rise yet due to indirectly coverup eg like subprime issue, stock market,recession begin, consumer product increase,oil price going up etc. is that a good sign.

in time will see how long can it sustain.


what do u think?

I don't know whether it will go up or down but one things I do know that a economic slowdown will not push up BLR. Actually it is the exact opposite and you've already pointed out the fact. The US credit crisis has forces the (US) central bank to lower interest rates to spur growth.

And I do think we have quite a brilliant central bank governor on our side, and it has several times in the past pointed out that whether BLR were to increase or decrease will depends on inflation being cost pushed or demand pulled since inflation and economic growth is often closely corelated in financial theories. If it's cost pushed, then increasing BLR to contain inflation will do more harm than good since prices will be going up regardless of BLR and the further increase in BLR will only only constrain growth. However, if it is demand pulled, then increasing BLR might be a good means to contain inflation and growth will not be too much affected.

Unless the present condition, inflation pressure is more cost pushed factor and it is my opinion that BLR will stay in the near future.

if BLR rate is going down..then it will beneficial to all of property buyer...i oso hope that it can break record until go to the lowest then i no need to pay so much interest rate for my future property investment,...but this is controlled by central bank..we cant do anything on it...

i scare that even if the BLR rate is going down, but the discount interest rate that is given by bank is low too, then this may not make any diffrent for buyer oso...currently, the standard interest rate offred by bank normally -1.4% to -1.7%....

now is -1.9 and -2

it depends.....
lower also got....
see how much is the property cost lor...
most probably BLR will go down...this is what i heard lar..donno true or not....

all the while i heard is the blr will be up in near future...
you are the 1st 1 which i heard that blr will be go down
i also hopes that it will be going down...

i'm looking for home loan also, now still consider whether to go for fixed home loan or blr minus package

anybody mind 2 advice?

Legiwei,

Well said. I agreed with you. Our inflation issue is kept in check, I too dont' see the reason for our BN to increase the BLR.

anything can happen. hope it will not go up to 8-12% as history recorded.

everything is increasing from day to day, dont see why there will be no revise of BLR in time to come

When recession comes BLR will shoot up. Its time to repackage your mortgages

I am confused here. Pls correct me if i am wrong.

The BLR is fixed at 6.25 by the Bank Negara. and the banks such as citybank or HSBC is offering 6.25 -1.5 to 1.7 is depend on the bank package to attract customers. Therefore it is the bank interest rate that fluctuates not BLR.

Correction. BLR is 6.75. And you are right in the sense that loan packages are offered by banks. However, when the package states BLR - 1.7% for instance, the BLR is NOT FIXED. For the current rate, BLR - 1.7 = 5.05%. However, if Bank Negara decides to revise the BLR (most probably upwards) then your effective rate will be affected as well.

BLR is fixed at a ceiling level by BNM, currently 6.75%, yes correct. But the fixed rate can be changed from time to time by BNM depended on economy situation. Just for the last 2-3 years, economy is not moving in either direction, so the BLR is being left at 6.75% for this period of time but it doesn't mean future BLR will be the same especially current economy condition and inflation situation will have big impact on the macro-economy side.

So BLR is not fixed but fixed at a ceiling by BNM and can be reviewed from time to time, normally when BNM hold meeting, (about a month plus for every meeting interval), only when there is emergency situation, then BNM will act accordingly which is same across various countries central bank or Fed Reserves.

I hope my explainatin is clear enough.

This post has been edited by cherroy: Jun 10 2008, 09:36 PM

In your personal opinion, do you think BLR will go up or down cherroy? And by how much?

BLR is now up to the Banks to decide their own BLR. Since all Bankers is a member of ABM, it is normally decided at 6.75% p.a.

BNM only monitors Overnight Policy Rate which is fixed at 3 point something as means to control the borrowing costs.

BLR low is good for those who borrow monies and not for the retirees/pensioneers or those savers as their FD Rate return is peanuts.

Yes, I can 100% confirm BLR will go up in the future.

But the question is when or how soon and how high can it go?

Reason being is that most people would not be able to enjoy the benefits when the rates are declining after a spike as they most probably would have implode financially.

Short term wise its a bet, but in the long term its a definite.

"BLR as the chart indicates has spiked to almost 13% twice in the last 25 years (coincidentally the favorite tenure of loans) with the most marked increase being in January 1995 from a base of 6.6%, to a high of 12.27% in June 1998."

Quoted from the article below, a good read for those interested.
http://www.money3.com.my/MalaysiaHomeLoanM...dRateLoans.aspx

This post has been edited by Zarth: Jun 10 2008, 10:26 PM

All,

1) IMHO, BLR will either stay the same or goes up. It will NOT go down. BLR is at the HISTORIC LOW now. So, it cannot go down.

So, how to determine whether BLR will stay or goes up: liquidity aka supply and demand of money.

A) Now, the bank has a lot of money sitting in the bank. So, the supply of money is high. But, if the RM keep going down versus USD, people may move the money out of Malaysia. So, BNM may need to raise the discount rate to keep money inside Malaysia. Then, BLR will go up.

B) Demand for money. If USA is going into recession and Malaysia is going into recession, nobody will be expanding their business. Hence, the demand of money is going down. If the demand of money is going down, how does that affect BLR?? And, lower BLR will not spur demand anyhow since people are out of job??

Watch (A) and (B) for your answers.

Dreamer

personally speaking, as one who did not delve any deeper into international finance than the macroecon level, should not the reduction in gov spending allow the bank some space to reduce rates? to be sure, this is counter-acted by the inflationary effects of oil, yet with governemnt spending, as well as public spending lower nowadays, and seeing that there is going to be a freeze on new gov projects, surely public savings is up which in turn allow banks to offer cheaper rates to spur growth?

and in contrast with what dreamer opines, if we have a large amount of savings despite the low rates, then it means that its quite inelastic, then. if we lower it further, it won't move by much, stands to reason. furthermore, i see nothing wrong with national money going out. any earnings from that money invested outside that is thus repatriated counts into the intangible exports section of the national accounts.

i am a bit confused, though. what do you refer to by 'demand for money'? is it money demand, as in the economic sense where it is the amount of currency one wishes to hold in proportion to savings, or money demand in terms of something else? this is because, in times of recessions, with the uncertainty of banks, money demand goes up, as in more money is in the hands of the public.

of course, it is all a muddle to me, currently. (drunk again, barbecue.).

The high supply of money has caused FD rate stay at historical low. Why? because since 1998 crisis, domestic demand has slumped and not recover well, while export is good because of cheaper RM, so trade surplus is building every year, every month, so money become plenty.
But with less investment opportunites around (businesses expansion, investment like stock market), those cash is just sitting in the banks doing not many things. You can esee those well managed company, mostly are high in cash level, which also a lot of well managed listed company give windfall special dividend from time to time because those cash has not much opportunites being used.

Gov spending is not reduced, don't be misled by this few days newspapers headline, those reduction is just tiny portion to make newspaper headlines, insignificant.
In fact, if gov spending is really reduced and slightly thrifty (like don't buy a Rm200 screw drive set) then gov won't have budget deficit of more than 3% of total GDP.

Also, although Malaysia ecoonomy is highly depended on gov (as 1 millions + workforce is in gov servant), still gov spending is not the entire picture, private sector is the one main driving force of the economy.

Another point is that reduction in gov spending has no direct relationship with money supply.

Actually we have negative interest rate at the moment as inflation rate > FD interest rate.

This post has been edited by cherroy: Jun 11 2008, 11:34 AM

this is true.

i do understand that fiscal policies do not have much to do with monetray policies; i was just mentioning the possibility of the gov taking on an expansionary fiscal pol. what with the high savings and low money demand despite the low rates, especially so given the para-demiurgical nature of the gov. i figure we just have to bear with the inflation for the moment.

on an aside, has the money supply increased much these past few years?

personally, i have never been able to grasp how people not dissave when rates are low. a little unreasonable in my mind, plus it muddles up the estimates.

IMO, the change on Government spending wouldnt really affect much on the value of Ringgit. Like most countries, Malaysian Ringgit too, would depend much on the retail sales, and credit market, which is much governed by private sectors and individuals. However, the recent 40% increase in oil price has cause much of a "market shock", in addition to the anticipation of further increase later in August. Like what happened the commodities, we'll most likely see an artificial inflation in Malaysia.

hmm..when was the last time Malaysian Rinngit Interest Rate was adjusted?

Even with fuel hike, e.g. pushing real interest rate to more negative territory, BLR will remain the same or lower (if recession) due to political reasons. If you review SGDMYR chart, in short term, there is no chance BNM will raise interest rate. Unlike Fed who talk up USD for the past few days, BNM will take this opportunity to help exporters by keeping quiet even after fuel hike.

hm...I'm not too good in economics, so pls correct me if i'm wrong..

During recession, most people especially middle class will try to save up their money in terms of cash. In addition to improve Malaysian Trade Balance, shouldnt BNM be cutting interest rate instead of increasing it? However, i am aware that cutting the rate would also cause further inflation, but the latter would also depend on how well do other banks work with BNM..

small-jeff,

<<During recession, most people especially middle class will try to save up their money in terms of cash.>>

1) Most recession, most middle class people get killed financially because they lose their job. Only a small minority has the opportunity to save more money.

<<In addition to improve Malaysian Trade Balance, shouldnt BNM be cutting interest rate instead of increasing it?>>

2) Only USA has that choice with LESS SEVERE IMPACT because it is the WORLD CURRENCY. For Malaysia, if we do that, the money will flow out and RM will devalue. Then, the cost push inflation will get worse.

<<but the latter would also depend on how well do other banks work with BNM..>>

3) No, it doesn't. We import fair amount of basic necessities. A devalued currency will raise the price of import.

Dreamer

thanks for the explanation.

just read a few articles, BNM will hold onto its interest rate and will not make changes on its monetary policies. When there's a slowdown or recession, interest rate is lowered. This will lead to inflation, which then, interest rate will be increased.

on the 3rd item, i was referring banks to soften their policies to ease on the credit market.

small-jeff,

<<When there's a slowdown or recession, interest rate is lowered. >>

Let me REPEAT ONE MORE TIME. BNM will not lower the interest rate.

1) Interest rate is at the historic low now. Lowering it will not help to improve the economy.

2) People has MONEY. Aka, liquidity is high aka a lot of money in the bank. People just choose NOT to invest. So, lowering the interest will not lead to MORE INVESTMENT.

3) We are over-consumed now for the past 2 to 5 years. There are very little additional money to gain for consumption even with lower interest rate.

So, there is NO GAIN to lower interest rate even if we are in a recession. But, there is A LOT of problem to lower interest rate. So, BNM will not lower interest rate.

Dreamer

Since MYR is going down, how about using RM for carry trade, e.g. JPY, USD? See SGDMYR chart

No as overnight rate for RM is 3.xx%, it won't be a target for carry trade. But Yen is, as Yen rate is 0.25-0.5% only so take Yen to invest in AUD or NZD will yield them 6-7%.

Also RM cannot be traded in overseas since 1998 currency control which not yet fully liberalised or open for trade, it won't be a target for carry trade as well.

USD is better carry trade target besides Yen. But with possibility of rate hike from Fed Reserves, it prompt those carry trade hedge fund manager to think twice.

---

Added on June 12, 2008, 1:34 pmDreamer is right, Malaysia financial market is not lacking of cash, but the main problem is those cash has nowhere to go.

This post has been edited by cherroy: Jun 12 2008, 01:34 PM

not too sure bout this, but isnt it that cutting interest rate would encourage spending/buying of a particular currency, instead of keeping it?

Just as now, people tend to have their money in funds, stocks, insurance or alike, rather than sitting in banks. In slower times, we might even see slight increase in retail sales. However, the big winners are consumer staples, while the big losers are department stores and alike. While retail sales might have a mild effect on currency, we would have to look at CPI. Would cutting rates improve CPI in a general manner (which also in respect with PPI)?

Cutting interest rate which eventually causing FD rate goes down, will discourage people to save in the particular currency. So people will sell the currency and opt to those offer high yield one, like currently AUD and NZD.

Cutting interst rate will encourage spending becuase loan become cheaper, quite correct. But with potential depreciation of the currency as mentioned earlier, it will prompt inflation to shoot up.
So cutting interet rate will lead to higher CPI number.

Having said that, cutting interest rate sometimes has 2 way of effect depended on particular country culture of spending. Like Japan and Asian countries, the more you cut down the interest rate, the harder people save because the poor economy outlook. Asian people tend to save more when economy situation and future looks bleak.
But for western countries, it is the other way round.

Comsumers staples has less degree of effect in whatever economy condition because those are daily essential item which people find no way to cut down like rice, oil etc. I don't mean has no effect, just degree of effect is lessen compared to those consumer discreationally item like cars etc. Even economy booming time, consumers staples rise in business also not as significant than others.

yes, one of the reason of cutting rate is to avoid banks being flooded by cash, which would cause inflation.

Yes, cutting rate will encourage spending. However, whether or not loans become cheaper will still have to depend on banks' policies and their willingness to allow loans to be approved during slowdown.



hmm..i think i've got your point..thanks for the explanation..

This point is not exactly right. When central bank cutting rate mean they want to spur the economy and flooding the market with more money to push start the economy.

So cutting rate will push up the inflation not prevent it. Just there are some potential ouotflow of money causing the particular currency to depreciate in currency market. But it doesn't mean surely, as seen by Yen, even with no interest people still buying Yen because of tremendous trade surplus.

hmm..there are 2 types of inflation here, or the scenario that could cause one. first, it's when the bank has too much of cash going no where. second, the market itself is overflown by cash.

So, when we are in a slowdown or recession, where the market converyor belt practically brought to halt, isnt it best to cut interest rate such that to keep the market moving? No doubt, cutting rate will see inflation in a matter of time, but that could be done by adjusting the rate again. In addition, market prices (including wages) will adjust itself according to the inflation. Good example is ofcourse, Yen.

From 2 friends working in the banks told me that their HQ has stopped the fixed rate loans (those like fix % for a number of years).

This is in anticipation of a significant increase in BLR expected in the next 2 months. So, let's see how true is this and my friends said it might be as bad if not worst than what we had gone through in 1998.

So, FD might be at high as 12%!!!

What about political factors? Can government-controlled BNM raise interest rate if people cannot pay their loans because being jobless? If you are politician, which one do you choose?
1. Lower currency value and higher inflation
2. People lose their homes

Like Fed, they may talk tough or raise interest rate a bit to appear as inflation fighter. But the fact is it is still negative real interest rate. How about taking Japan central bank as an example? Whenever Japan central bank want to raise interest rate, Japan equity market and economy suffers. IMHO, central banks will only increase real interest rate if cheap currency no longer works or every country agrees not to 'rob' each other using cheap currency.

Not possible unless Malaysia is having another crisis like 1997. Mostly rate hike won't exceed 0.5-1.0% range only.

oumind has the point.

Why? Because several factors

1. BNM doesn't want RM to appreciate (increase in interest rate can push upa particular currency because of yield) which can jeopradise the export industry (Malaysia is a highly export orientation economy)
2. High interest rate will kill of a lot of domestic demand, eventually increase the NPL of banks which might drag the banks into some problems.
3. Gov prefer to see inflation (provided it doesn't go out of control) rather than people losing their home and jobs which eventually might cause them political and social problem.

Unless economy is growing at red hot pace currently or previously (like China) then BNM has the room to raise up to 10% range which is not the case of current situation. BNM is not very famous for fighting inflation situation either. They are more prefer growth rather controlling or anchoring the inflation or inflation expectation, just my personal opinion.

i think the government could less not care about the people.
its all got to do with KJ and pak lah.
if pak lah has a lot of shares in housing developement,
the governement will make it easier for people to buy houses.
if not then, the will do something to make sure the companies they own, make huge profits.
i have this idea that anything the government does, they do it to profit the companies they own.
sorry, this is how malaysia has presented itself to me.

interest rates are definitely going up. no way then can go down any longer. spending must be curbed. hopefully unlike our petrol price increase, this will be done gradually so as to not kill off everyone in sight.

Please give out reasons whenever you make a claim. Making unfounded claims based on your own gut feeling is not part of a discussion.

If u look back of what Cherroy said. U will know any changes of interest rate now will severally worsen the Malaysia economy.

To anyone who is interested, BLR is not at its historical low. A few years back it was actually at 6.00%, so u can say that the BLR is already on a rising trend although it has stood at 6.75% for quite some time already.

Raising Interest Rate now would effectively caused an imaginable horror to everyone as if petrol price increased is not enough.

How many people 'refinanced' their loan for more loans? How many people seek out personal loan or buy new car or buy new investment house? Cheap rates draw out more people into debts and if these rates changes, there would be a chaos in the debtors' life.

The majority of GDP growth is coming from consumer spending. Higher rates mean bye bye.. cheap loans... and GDP growth until it kinda realigned itself again.

eric.tangps,

<<Raising Interest Rate now would effectively caused an imaginable horror to everyone as if petrol price increased is not enough.>>

Not everyone. For people that save 50% of their gross income, we are WAITING for this disaster.

Dreamer

From what I heard, BLR will increase further and it would be anytime soon. I hope this rumour is not true but car loan interest have increased somehow.

If inflation pressure remained, yes, it is possible that ourBLR will increase.....well, we hope not!

If they increase then we should "thank" Barisan Nasional for bringing an extra problem to us.

rumour from my fren who is a branch manager of certain bank. BLR will be increased to 7% next month

So increment of 25 basis point is 25/675 * 100 = 3.704%. What is the percentage of fuel hike?

erm...just one question to those who thinks BNM will increase the interest rate.

Q: For what reason would BNM increase the interest rate?

For the 1997 financial crisis, there's a good reason for BNM to increase the rate to hell's level. But as for the 2008 financial crisis, it's different from the said 1997.

car loan interest rate will be up soon, news quite confirm.

BLR increment will have to wait till next BNM meeting in july.

In this country, if we can spent millions to send 1guy away from earth to prove that malaysia boleh while we could have spent to build more free roads n give scholarships to more students, nothing else can't happen.

from our past history, our government can approve anything for any goddamn reason.

According to my sources working in the bank, they said their banks have stopped giving out loans with fixed rates. That means, they ANTICIPATE that the BLR will increase SOON. Maybe as bad as in 1998.... ) Let's pray...

Looks like there a number of economists (not investors) among us, e.g. doing the right thing vs doing the thing right?

This post has been edited by oumind: Jun 19 2008, 11:05 AM

Pray for? I'm sure some will pray for it to happen sooner and others will dread it

By next monday, 23.6.08, our HP interest for puchases of new or second hand car will be adjusted upward. Once HP interest is up...I won't be surprise to see our BLR is going to follow soon..

Why are they making us paying more for every single thing?!

it's business, they need to take care of their own profits 1st.

Are you sure it will happen next week? My fren was asking about it, cause he want to get a car by now if it is true. Where you got the news?

at least toyota confirms that...

I am curious to see how a Rate hike can damage the most people. It will do more damages than actually helping the poor to fight the inflation. Especially those who barely save money in bank, they certainly wont benefit much with a better FD rates, instead their LOAN will get bigger.

I still think the Gov should have more tax reduction in any field or any kind of incentive skim to help the poor than raising interest.

Raisin rate will cause people save more. Arent we have a lot of cash sitting in bank now?

it is true. I have verified it with my banker and is confirmed. Ask him to ask his car dealer, they will tell him the same.

---

Added on June 20, 2008, 3:52 pmNormally BN up interest rate to soften the inflation pressure - interest rate up = demand lower = price drop.

Looking at the inflation rate the world is facing now..i am prepared for the increase of BLR. I am just hoping the damage will not be so severe! If we can recall, we have interest as high as 12% back in year 1998!

This post has been edited by Jean72: Jun 20 2008, 03:52 PM

at 1st we are only worried about the petrol hike's chain-reaction, now added with booster from our political unstable situation.... no investor will like political unstable country, lets see foreign investor will stay...

The rate hike in 1997/1998, IMO, is to further prevent trading of currencies, which was the main caused of the financial crisis. Leaving the rate as it is, or to reduce is, allows the market to flow, perhaps at a lower rate due to inflation. In this scenario, people would tend to choose what to buy, instead of buying everything, including things they dont need. Look at the recent inflation in US. Retail sales did not drop. However, sales shifted from luxury items to consumer staples (there is an increase in the latter).

I would agree with billytong. Rising the rate is a suicide attempt for BoM, as well as other banks. No doubt, initially it would lower the demand. However, due to poor credit market, the supply would eventually be affected as well. Perhaps to a halt. This in turn, would cause worse inflation, where the market chain is broken, and would take a longer time to recover.

When the buying stop, the business owner profit lowered, When profit lowered, there will be job lay off. People with no jobs will spend even less. Thus it will make the business sector turn from bad to worst = more lay off and repeat and repeat again.

IMO, the 1998 case was the BNM was trying to save the money from being taking out from Malaysia. Saving a big sell off of RM. It failed until Dr. M fix the rate @ 3.8 as controlled currency. (If he didnt do that we probably drop to 1USD vs RM5-8.00)

One word -> Inflation.

in 97, BNM raised interest rates to boast the significantly weakened RM and reduce funds outflow. Its diff from today's situation.

Central bank's conventional wisdom says :

If CPI > OPR ----> Raise rates
If CPI < OPR ----> hold or reduce rates.

and totally agree that rising rates significantly (anything > 75 bp) today will effectively kill off domestic spending and send the country to a prolonged slowdown. I hope that BNM learns a thing or 2 from latest FEDs move.

Just to add on the dallor-pegging done during the 1997 financial crisis. In order to maintain the 3.8 exchange rate, BoM will have to buy US$ with MY-RM. From year 2000, the amount of foreign reverse have increase tremendously to up 2004 to about US$71 Billion. However, we do need to remember, in order to "buy" US$, we need a huge amount of Ringgit. Inflation by defination, is the over supply of a currency. In this case, the over supply of Ringgit, where Bank Negara had to free print Ringgit in order to "buy" the Dallor. And it is for this reason, we could observe the ever rocketing CPI, housings, etc. Ofcourse, we're not alone. China has about US$600 Billion on hand now, that's a much greater problem..

Read here for a more detail explanation.

Anyway, CPI for 2008/2007 is at 2.9%/3.0% for peninsular and sabah/sarawak respectively (2005 base), while the OPR is maintained at 3.5%. While there was an increase in unemployment rate to 3.2%, it's still being considered "OK" as it's still well below the 5% red light.

IMO, perhaps the bank raising HR rate is at an attemp to avoid bad loans?

it's hardly to said that BLR rate can be lower in future cos it is depend on BNM decision...actually if u compare to last time, the BLR rate now is a slightly lower...so it will benefit people who plan to buy house..

The amount of foreign currency reserves come from trade surplus and money inflow.

Malaysia or country doesn't buy USD for their foreign reserves aka you don't print money purposely to buy other currency in open market to put in reserves. Generally, foreign Reserves come from trade surplus.

Eg.
Malaysia is an export orientated country. So locally produced goods, palm oil, oil etc, are exported to all over the world. So company in Malaysia will receive money in the form of USD, so there are foreign currency inflow to Malaysia. So if company wish to convert to RM, then circulation printed money of BNM will be converted to USD. Then BNM will keep those USD, that's where foreign currency reserves come from. You don't purposely print money to buy USD in the open market, it will cause massive depreciation of your currency. Every central banks are very careful about printing money or provide money supply, as it has significant impact on your currency value. Generally they only print or provide money supply according to the economy needs as mentioned earlier, RM being printed because of demand for RM from USD. Yes, it will flood the financial system with more liqudity, as mentioned in your post or linked, but this come from demand for money in the first place.

Eg. businessman that received money from export businesses then take those USD to BNM to convert to RM, how can BNM say no? So, BNM needs to give the businessman RM and keep those USD. So eventually there become more RM in the financial market, that's why KLIBOR rate stay at relative low level (low FD rate), because the financial is full of money around.

Whenever you see country with high trade surplus, then they definitely have huge foreign reserves currency. Japan, China, HK all are having huge trade surplus with US.

Malaysia has low foreign currency reserves prior before 1997 crisis because at that time, Malaysia economy is in red hot form, growing robustly, so local demand is strong, and demand for import goods, machinery is high, so there was trade deficit at that time. But since 1997 crisis, domestic economy no longer as same as previously, so demand of import shrink but export due to cheaper RM (after depreciation) continue to grow, so the trade surplus become bigger and bigger so does foreign currency reserves.

Also, another point to make, current inflation situation is not mainly demand driven by domestic Malaysia demand. Domestic demand is not as strong as people taught. It is mostly demand driven by external factors, although Malaysia economy is 'full of money' also, but this is not the major current massive inflationary factor.
Main culprit current inflation situation is from China demand especially on commodities side. Also Fed whom provide cheap money around the world, which lead to US subprime meltdown as well.

Just my opinion.

This post has been edited by cherroy: Jun 21 2008, 10:43 PM

hm...when a businessman brings in US$, no doubt, BNM will have to give them back as RM. In any way round, BNM is still using RM to buy US$. From 1998 to the early 2000s, it would be rather difficult, if not impossible, to gather RM269.8 billion in cash, in addition to the slower market movement during that period. Just my view..

Japan, China, HK, and also Taiwan is experiencing high inflation as well.

Anyway, thanks for the info cherroy.

i just heard that BLR will increase to 7%....coz i just wanna apply loan base on BLR then they said that it might be increase, so they offering KLIBOR type loan...

yeah.. heard too , BLR will increase to 7.2%

Sorry,..... heard from where please ?

heard from LYN ?

standard chartered loan personnel..i had already sent my application few day later he call me said like that(because he just attend a meeting)...so i switch lor...

This post has been edited by razorzx66: Jul 1 2008, 01:56 PM

heard from bankers looo...

Bankers don't decide how much BLR will be increased, the bank personels can only speculate. BNM decide how many points they can increase.

i think interest up > ringgit strengthen > import cost down > price down

i think that's the purpose

IMO, Malaysia has to maintain a +ve trade balance. by means, export > import. Appreciating the Ringgit could reduce exports, especially due to recent hike in inflation and oil price. there has already been a market shock. another one will not do any good. Depreciating the Ringgit doesnt necessarily means bad economy. As long as the Ringgit remains flowing through the market, it should be good.

just my view

Banker here from loan processing, yes the news is true but today just got another news Bank Negara decided not going to increase

999% riot if it reach 7.5

they plan to increase till 8% btw

Good, we might just follow the footsteps of the US financial slowdown

I still think the BNM should not touch the interest rate.

Come on? Since when poor people have most of their money in bank? They probably use to pay loans & their expenses etc leaving nothing left to save.

having higher BLR only benefit the rich who have huge saving in bank, and the poor wont be able to get the FD interest benefit to counter the inflation.

if the rates adjust higher, there'll be more bad credit mortgage. Lets see how much of write-down will the banks go, if the rate is increased. and lets see whether banks will run out of capital.

not to mention the poor couldnt affort the higher rates. with majority of middle class purchasing houses at 200k-300k...unimaginable.

Gents, thank you for your replies. I will look at it this way : even if they increase the BLR, it doesn't necessarily mean that the FD rate will increase. The FD rate will only increase if the banks need money to loan out.

Otherwise, ONLY the BLR will incarese, but the FD rate remains.

Unless somebody tells me that it is a BNM regulation that if BLR increases, the FD rate must increase also. Is this a regulation ???

BN's timing just very bad

they should do this either earlier or later....but not now

Monetary policy moves if prices rise further

Inflation is likely to have hit 6% to 7% in June, says Zeti

BASEL: Malaysia's inflation is likely to have hit 6% to 7% in June and Bank Negara will take action on monetary policy in the event of generalised price increases.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said domestic factors, including recent cuts in fuel subsidies, and a slower external economic environment could lower the growth rate below 5% this year.

Costlier food and energy prices pushed Malaysia's May inflation to a 22-month high of 3.8%, even before the Government raised domestic fuel prices in June.

“We expect inflation to rise, especially in the month of June following one of the adjustments by the Government - the reduction in subsidies.

Therefore, for June, inflation is likely to be 6% to 7%,” Zeti told Reuters.

“We will monitor it very closely - whether this results in the pass-through to other consumer items and whether there are any second round effects like wage increases.

“And the central bank will be prompted to take action in the event that it becomes a generalised price increase.”

Zeti said when setting interest rates, the central bank had to assess effects of both higher inflation, as well as domestic and external factors moderating growth.

She said Bank Negara had no immediate plan to hike interest rates if inflation tapered in the second half in line with its forecast.

The cost of borrowing has stood at 3.5% - one of Asia's lowest - for the 17th straight policy-setting meeting.

“Interest rate is an instrument of policy to deal with demand-driven inflation,” Zeti said.

“Our interest-rate policy is forward looking. We will look at what the risks are - upside risks to inflation and downside risk to growth as a result of a slower external environment, and as a result of a moderating impact of higher energy prices.”

Asked if investors were wrongly betting on a possible quarter or half-point increase in interest rates, Zeti said: “The market is assessing it, based on a price increase, and it is not wrong to assess that indeed prices are going to increase, based on the adjustment Malaysia has taken.”

Zeti said the country's growth forecast was currently 5% and the central bank was announcing a revised forecast in July.

“It could moderate to some extent, below 5%, but we expect the economy to be on solid ground because it is highly diversified,” she said. – Reuters

URL: http://biz.thestar.com.my/news/story.asp?f...14&sec=business

i heard it will go down since there are too many houses..too much supply but not much demand so have to go down to attract more ppl to buy house.

heard from where?
it will impossibly go down.
let's wait for 25th July announcement

BLR is not only for house loan, so 1 factor doesn't decide BLR.

Some research houses expect the interest rate to go up this month (Fri?), and some don't. What do you think?

all signs point toward an UP, let's wait for friday news.

Maintain interest rates, say economists

PETALING JAYA: Concerns on stagflation and weaker growth are why some economists are advocating to keep interest rates unchanged.

According to Kuwait Finance House, a rate hike at this juncture would increase growth concerns and affect lending, especially to the retail sector.

Consumer sentiment had already plunged to a record low of 70 points, well below the 100-point level, the foreign research house said in a report.

CIMB-GK Research regional economist Song Seng Wun said the Malaysian economy faced downside risk with global demand slowing.

Furthermore, expectation of inflation is contained to a certain extent as employees may not be pushing too much for salary adjustments amidst slowing growth, therefore limiting concern of rising cost of doing business.

With global commodity prices retreating and coming off their peaks, inflationary pressures might also ease, Song said.

OSK Investment Bank, in a report Thursday, said an interest hike would erode earnings margin and beat down consumer sentiment.

“The hike in interest rates could widen the positive differential between the US Fed fund rate and the OPR (overnight policy rate), which will probably attract ‘hot money’ inflows into Malaysia,” it said.

An alternative to mitigate inflations would be to allow the ringgit to appreciate against the US dollar so that imports would be cheaper.

TA Securities in a report said the current inflationary environment was attributed to cost-push effects as demand most likely slowed in June as disposable income was crimped following the fuel hike.

“We expect that the OPR may remain at nine-month constant rate of 3.5% and Bank Negara may review it if the inflation rate break pass the 4% neutral level in the coming months,” the brokerage said.

Aseambankers shared similar views, noting that “gloomy economic outlook and recession warnings” had been issued by central banks and government officials in developed countries.

It expects Bank Negara to keep the benchmark rate unchanged at 3.5% when it meets Friday and for the rest of the year in order to sustain economic growth amid the growing risk of a weakening global economy and downside risk to domestic economic activities due to political and inflation factors.

URL: http://biz.thestar.com.my/news/story.asp?f...19&sec=business

Zeti likes to say that interest rate is a tool to control "demand driven inflation". She has also countless times mentioned that raising interest rates will have to be assessed on the risk of slower growth.

The current situation is definitely not demand driven. Instead I wouldn't be surprise if the central bank relax the credit facility and concentrate more on providing an avenue to SME financing, an industry which populates like 90% of our economy.

OPR maintained at 3.5%

KUALA LUMPUR: Bank Negara’s Monetary Policy Committee has decided to keep the Overnight Policy Rate unchanged at 3.5%.

Announcing this on Friday night after a day-long Monetary Policy meeting, Bank Negara said while the risks to higher inflation and slower growth have increased in the next 12 months, “the immediate concern is to avoid a fundamental economic slowdown that would involve higher unemployment”.

“Slowing growth itself will contribute to containing the potential for second round effects on inflation, thereby containing further increases in prices in the second-half of 2009. Given the underlying fundamental strength of the economy, and the resilient banking sector, the Bank’s assessment is that after this transitional period, the Malaysian economy has the potential to re-establish its medium term growth path,” Bank Negara said in a statement.

According to the central bank, the performance of the Malaysian economy in the first-half of 2008 has been driven by robust domestic demand and reinforced by favourable export performance.

“The recent major restructuring of domestic energy prices to bring prices closer to the substantially higher international prices is intended to reduce the fundamental distortions that it might create, and to ensure fiscal sustainability. These adjustments are expected to have a deflationary effect on the economy in the second half of this year and into the early part of 2009.

“The Bank is projecting inflation to remain elevated in the second-half of this year and into early next year before moderating towards the middle of 2009. The average inflation for 2008 is projected to be in the range of 5.5-6%. The inflation rate is expected to moderate in the second half of 2009 in the context of a more moderate growth environment.

“Currently, much of the significant rise in inflation is due to the increase in fuel prices. At this stage, the concern is for broader price increases and second-round effects, which would result in inflation being persistent. In such circumstances, the appropriate monetary policy response will be taken in order to maintain medium term price stability and ensure that the high inflation does not undermine the longer term growth prospects of the Malaysian economy.”

URL: http://biz.thestar.com.my/news/story.asp?f...27&sec=business

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Added on July 25, 2008, 8:43 pmRates: To raise or not to raise?

Some economists say interest rate hike can contain inflation

PETALING JAYA: Economists say any interest rate hike by Bank Negara following today's policy meeting will be carried out in response to the current inflationary pressure and to counter the negative real rate of return.

According to figures released by the Government on Wednesday, the consumer price index had risen to a 27-year high of 7.7% for the month of June largely due to the increase in fuel price and would likely stay at the same level this month following the hike in electricity tariff.

Daiwa Securities chief economist for Asia ex-Japan Prasenjit K. Basu said a hike in the overnight policy rate (OPR, the key interest rate that affects commercial banks' lending rates) was likely at the meeting. “Certainly by end-August there'll be a hike of 50 basis points,” he told StarBiz yesterday.

Basu said the central bank had a policy of maintaining a positive real deposit rate and would need to raise the OPR in order to maintain the policy. The OPR currently stands at 3.5% while banks' average one-year deposit rates stood at 3.70%.

Fortis Bank senior economist Joseph Tan said the country needed to raise rates to check inflation expectations as well as to avoid a negative feedback loop.

“If the market sees the country as behind the loop in containing inflation, the ringgit might weaken and this would increase the cost of imports,” he said, adding that Malaysia should not follow the path of Thailand and South Korea, which did not do enough to contain inflation.

Tan said while higher prices and the fuel price hike mainly drive inflation, other factors must also be considered to check on inflation expectations.

Kenanga Research economist Wan Suhaimie Saidi said in a research note that Bank Negara might revise the OPR upwards to 4% in the next six months with a 50% probability that there would be a 25-basis-point rate hike to 3.75% at the policy meeting.

He said the upsurge in consumer prices, along with the regional rate-tightening trend, had put the central bank's pro-growth policy in a quandary and posed an increasing challenge to maintaining the current monetary policy stance.

Given the current scenario, Wan Suhaimie said policy makers might be more focused on combating inflation and wrestling with the huge negative real rate of return.

Meanwhile, AmResearch Sdn Bhd said in an economic update that interest rates were likely to be adjusted upwards in line with the international trend.

Earlier in the month, the European Central Bank had raised its benchmark refinancing rate to 4.25% following a jump in inflation to over 4% due to surging oil prices. Closer to home, the Indonesian central bank had raised interest rates by 25 basis points each month in the last three months. Other countries in the region, including India, had also raised rates recently as they grappled with inflation.

AmResearch said a gradual increase in the OPR would be expected, with a 25-basis-point hike following the August meeting and another before year-end, which would put it at 4%.

URL: http://biz.thestar.com.my/news/story.asp?f...47&sec=business




This post has been edited by David83: Jul 25 2008, 08:43 PM

Monetary Policy Statement by BNM
http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=1664

I kinda like this statement. Sadly this kind of remarks never made it through in the oil debates.

Bank Negara expected to keep OPR at 3.5% in 2H

KUALA LUMPUR: Bank Negara Malaysia (BNM) is expected to keep the overnight policy rate (OPR) at 3.5% in the second half of this year due to the worsening external environment and slower domestic growth prospects, says CIMB Economic Research.

It said Monday the central bank’s decision to maintain the OPR at 3.5% last Friday was “appropriately calibrated, given the current weak economic environment and the outlook over the next six to 12 months”.

CIMB Research said BNM’s decision to keep the OPR unchanged matched its expectations and made it the 18th consecutive time that the rates were held steady since May 22, 2006.

The research house said the tone of the central bank’s policy statement was skewed towards the potential significant downside risks to growth.

“Besides the elevated global risks, BNM is concerned about the deflationary impact of higher fuel prices and tariff as well as rising inflation on spending and investment in 2H of 2008 and 1H 2009,” it said.

It added the central bank’s policy consideration was to avoid a fundamental economic slowdown that would involve higher unemployment.

BNM had raised this year’s inflation forecast to between 5.5% and 6.0% from the previous estimate of 4.2% made immediately after the fuel price adjustment.

CIMB Research said the central bank was most concerned about generalised price increases and second-round effects triggered by wage increases.

“Should this phenomenon occur, the central bank would not hesitate to act. We think the slowing growth environment will help to moderate price pressures and lessen the pressure on wage hikes,” it said.

Meanwhile, Kuwait Finance House (KFH) global research said Monday it also expected inflation to remain elevated in the next few months.

KFH said the higher inflationary trend was due also to the recent hike in electricity tariffs, which came into effect on July 1, and persistent price increases on the food and energy fronts.

It expected the Budget 2009 proposals to be announced on Aug 29 could contain several more measures to increase the government’s revenue for development purposes.

“There are high expectations that higher duties and taxes will be levied on tobacco and alcoholic beverages which would further impact the consumer price index,” it said.

URL: http://biz.thestar.com.my/news/story.asp?f...07&sec=business

for the past 2 months, i hear lots of gossip from bankers saying that gov will increase OPR.. thus other rates eg BLR will increase too. Personally i think gov shouldn't increase the OPR... despite sky rocketing inflation, its mainly driven by oil price... not consumer spending more... thus i think if gov increase interest rate will only worsen the consumer's spending power. any idea?

I would like to hear especially the opposite view of why you think gov SHOULD increase interest rate.