Hmmm do our banks have poor risk-weighted capital adequacy ratios ?

I understand your argument re: higher rates producing higher NPLs among floating rate loans.

But I think our banks won't run out of capital - i.e. I don't think our banks are working on such efficient capital regimes...

... but that's because I think our Malaysian banks are (intuitively) overly conservative

Look at Maybank for example, they went and did a placement & fundraising to shore up their capital for the BII acquisition, and now the acquisition may not even go through, they are going to be sitting on so much excess capital...

If our banks had been aggressive, regionally focused, growing through re-investments abroad and domestically, etc. then yes, I would agree that our banks would be more at risk from a capital adequacy perspective.

But our banks? Nahhh...

I hope you won't mind if I speak frankly?

This is flawed logic.

By this equation, that means the BNM's duty is to clear the property overhang in the market?

Property developers over-produce houses, e.g. say they built 3 houses for every 1 family in the country, and the government (via BNM) pushes loan price down to encourage people to buy the housing assets?

In this case, BNM is working for property developers

What should happen is that house prices will fall / decline so that demand will clear supply.

If BNM were to push for lower rates to spur house purchases, what do you think will happen? Yes, after the houses clear, the property developers will produce even more houses

That's why a properly functioning price mechanism is important in every single market to act as a market-clearing mechanism.

I love Economics. It rulez!

While I have been an advocate of raising the BLR to combat inflation, I saw a fascinating article the other day in The Edge.

You see, there are 2 types of inflation: Demand-pull inflation and cost-push inflation.

In demand-pull inflation, rising demand in excess of supply causes prices to go up. To cool off demand, interest rate rises (as a monetary policy tool) helps slow consumer & business loan growth, thus reining in inflation (but also economic growth).

In cost-push inflation, it's the increase in raw material prices in the supply side, which is causing prices to go up (demand is constant).

Different situation. I am still mulling my thoughts on it. But read The Edge!

Our BLR is already near historic lows. Doubtful I'd see it go lower.

The question at the moment is really stay or rise.

Our economy is not in a deflationary state, and even if we end up in a recession, we could probably use other policy tools to kickstart the economy rather than feeding in more cheap capital...

... i'd probably say that our economy would do much better if we could allocate capital more efficiently to productive projects, rather than making capital even cheaper.

The cheaper capital becomes, the lower the returns we tolerate on our investments.

For those among you who may be more speculative / trading-minded.

There is one certainty whenever BNM holds interest rates constant in the face of widespread expectation of a rise in interest rates.

Regardless of BNM's arguments behind it (which I am sure they are sound), that kind of maneuver will weaken the ringgit as the inflationary expectations will feed back in.

I haven't seen the ringgit trading since the BNM announcement, but I wouldn't be surprised for it to head that way.