Federal Reserve of the U.S looks at inflation numbers as a key determinant on whether or not they will raise the interest rates. Higher inflation would show that growth is continuing due to better demand. Thus, the rates would rise continuously towards normalisation. This is also one main reason why the US$ continue to be strong thus far even with their current President. What about Malaysia? Well, TA Securities Holdings (TA Research) believes that Bank Negara Malaysia (BNM) will most likely increase the overnight policy rate (OPR) by 25 basis points within H1 2017. There’s just two months left for H1 2017. It said, “We expect the increase in rate to augur well for the banking sector as (profit) margins are compressed by competitive pressures.” Previously, it predicted that the OPR would be maintained at 3 percent for the whole of 2017. The reason for this potential hike is because of an improved economic growth as a result of better performance of the external sector, challenged by higher inflation as well as volatile capital flows amid an on-going US Fed tightening cycle.
Tightening of rates would be the same as increase the rates. Why ‘tightening’ word is used is because when rates increase, borrowers may think twice before they borrow money. Their mortgage payments for example would also be rising too. Therefore, fewer people would borrow and this means a ‘tightening.’ An easier example? When we increase the prices of a certain good, the demand would go down because not everyone would be able to afford the price increase. Labour market is expected to be stable even if there are reports that 500,000 youths are currently jobless. (Let’s get real, some of these people just do not want to work! GO and search for the available jobs today and we would note that companies continue to hire BUT… they need talents. TA Research also said that it believed BNM’s outlook for Malaysia’s economy which appear to be positive. Besides that BNM believed that Malaysia’s household capacity to spend remains healthy as the country household liquid financial assets to total household debt ratio remained stable 140.4 percent in 2016. In brief, value of the assets owned currently exceeds that of the household debt. BNM expecs gross domestic product (GDP) growth of between 4.3 per cent and 4.8 per cent for 2017. Household debt vs GDP is now 88.4%, down from 89.1%
Meanwhile, analysts at the research arm of Hong Leong Investment Bank Bhd (HLIB Research) and AllianceDBS Research Sdn Bhd (AllianceDBS Research) believed the banking sector remained resilient to support the country’s economic growth. Current exposure of banks to the oil and gas (O&G) comprised just 7.7 percent of total corporate debt. Full article in Borneo Post here. Happy following as any change in OPR will not just affect first time buyers but also those who has many properties.
written on 28 March 2017
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