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.

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

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.

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

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

BNM has a dilemma
1. Save/sustain economy by keeping interest rate lower than real inflation rate
2. Save RM by adjusting interest rate to keep up with real inflation

Option 1 is the easiest choice unless savers refuse to lend, e.g. watch for gold price in 2012 and beyond