Central Banks: The Need to Hold on to Stimulus Policies

NHA TRANG, Vietnam, April 7 — Southeast Asian central bankers see scope for keeping economic stimulus policies in place as long as the recovery remains fragile, Philippine deputy central bank governor Diwa Guinigundo said today.
When the time comes to unwind those measures, however, they will not be able to synchronise steps and will have to act individually, he told Reuters after a meeting of central bankers from countries of the Association of Southeast Asian Nations.
“The governors have noted that the significant factor here is the strength of the recovery, both globally and in our respective jurisdictions, so if the recovery continues to be fragile then there is some scope for keeping the monetary and fiscal stimulus in place, of course with due recognition that doing that could pose challenges to inflation management,” he said.
“I don’t think we will be able to synchronise our moves,” he said, adding that pledges to enhance the exchange of information with regard to policy would be useful.
Asean groups an array of economies, including Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. So far, only Vietnam and Malaysia have raised interest rates, although others have taken steps to signal a wind-down of stimulus policies enacted during the global slowdown. — Reuters

UK: On The Road to Recovery

A Reuters report  indicates that  though Britain’s modest economic recovery remains on track, the service sector growth slowed last month and a looming public spending squeeze is making firms reluctant to invest.

The health of the economy remains a key factor in a May 6 election which is shaping up as the most closely watch fight for a generation. The CIPS/Markit purchasing managers’ index showed the country’s services sector expanded less than expected in March.

The reading slipped to 56.5 from February’s three-year high of 58.3.

Separate figures from the Office for National Statistics showed services output fell in the first month of the year at its fastest monthly pace since August.

A survey from the British Chambers of Commerce showed export balances for both services and manufacturing firms improved at the start of this year. However, investment balances worsened and confidence remained low by pre-recession standards.

There was also a marked divergence between the services sector, which continued to strengthen, and the manufacturing sector which stagnated.

“The results support the view that GDP growth stayed positive in the first quarter, but the recovery is set to remain fragile and sluggish,” said David Kern, BCC chief economist.

Another survey, from the Recruitment and Employment Confederation, showed the number of people placed in permanent jobs rose last month at the fastest rate since October 1997.

However the report noted that the return of confidence was confined to the private sector and the public sector was set for a long period of belt-tightening.

“The public sector recession which clearly is on the cards hasn’t hit the jobs market yet but when it does, the upward trend we have seen over the last couple of months may come to a halt,” said Bernard Brown, a partner at KPMG.

The economy’s emergence from recession in the fourth quarter of last year allowed the ruling Labour Party to regain some popular support.

Polls are now pointing to a “hung parliament” in next month’s election, with the centre-right Conservative party having a greater share of the vote but not enough seats in parliament to secure an overall majority.

An inconclusive election result is the worst-case scenario for financial markets, which want the next government to have a clear mandate to tackle a budget deficit forecast to exceed 11 percent of GDP in the 2010/11 fiscal year.

Favourable winds are few at the moment, though interest rates remain at record lows. The Bank of England slashed rates to 0.5 per cent in March last year and is not expected to raise them until the fourth quarter of this year at the earliest.

Inflation, which surged well above target at the turn of the year, also looks set to be abating and most economists expect it to retreat below 2 per cent by the end of the year.

There was good news on that score from the British Retail Consortium which said shop price inflation slowed to 1.2 per cent last month, its weakest pace since November.

“Falling shop price inflation is particularly welcome relief for consumers as they face sharp rises in other living costs, such as fuel,” said Stephen Robertson, director general of the British Retail Consortium.

My Take:

Looks like a fragile recovery that may halt any time!

Australia: Another Cash Rate Increase

Australia is indeed pushing the envelope.Like the proverbial kangaroo, it has pony up the cash rate by another 25 basis points. In 14 months,the rate of 4.25% is the highest with speculation that the cash rate will be 5% by year's end.

Let us read the Reuters report.

"SYDNEY: Australia’s central bank raised its key cash rate by 25 basis points to a 14-month high of 4.25% yesterday and flagged further moves ahead as the resource-rich nation rides a tide of Asian demand.
The Australian dollar climbed and bill futures slid after the Reserve Bank of Australia (RBA) delivered its fifth hike in seven months, far outstripping any other developed country.

And there was more to come.

“The bottom line here is that as the economy normalises so will interest rates, so we’d still expect to see a cash rate of 5% by the end of the year,” said Michael Blythe, chief economist at Commonwealth Bank.

Investors have already priced in just such an outcome, though they were less sure whether the central bank would move as early as its next policy meeting in May. Interbank futures were showing a one-in-three chance of a rise to 4.5% next month.

“The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process,” the central bank said in a statement.

RBA has indicated that the average, or normal, rates would fall somewhere in the range of 4.25% to 4.75%.
“They are sticking to the big picture that the global economy is improving and things here are picking up,” said Paul Brennan, head of market economics at Citi.

The economy has been supported by aggressive fiscal and monetary stimulus, a stable banking system and strong demand for Australia’s commodity exports from Asia, especially China.

“So, rates should be raised to normal levels quickly. We expect a rise to 5.25% by December,” Brennan said.

That would take Australian rates even further above those in other developed nations, one reason the local dollar hit a fresh record high on the euro yesterday.

The country’s good fortune owes much to the insatiable demand for commodities from Asia, especially China and India, which is generating huge price rises for iron ore and coal, Australia’s two biggest export earners.

Combined with a strong Australian dollar, which is pushing the price of imports down, this is set to deliver a sizeable increase to the country’s terms of trade.

To meet overseas demand, resource firms have embarked on ambitious investment plans, including A$43bil for one massive liquefied natural gas project in the Gorgon field.

Stephen Walters, chief economist at JPMorgan estimates that, added to government spending on infrastructure, there are A$700bil worth of projects in the investment pipeline, equal to about 60% of gross domestic product.

That, in turn, has helped drive a remarkable recovery in the labour market. Almost 200,000 jobs have been created since August while the unemployment rate dropped half a percentage point to just 5.3%.

This time last year policymakers had feared the jobless rate would top 8%.

There was more upbeat news yesterday with ANZ’s monthly survey of job adverts showing a 1.8% rise in March, an impressive result given it came on top of a 19.1% in February.

The surge in jobs has lifted household incomes and driven house prices to record highs, while also boosting the government budget through higher tax receipts and lower welfare payments.

But with skill shortages already appearing in engineering and construction, such strength also threatens to push wages higher.

“The economy is in better shape than anyone dared hope, so it’s natural that rates should return to the average of the past,” said Rory Robertson, interest rate strategist at Macquarie. “But that doesn’t mean average is a stopping point.”

“If the economy continues to grow above trend and unemployment to be below average, then the RBA will quickly shift to a tighter stance,” he argued. “We could easily see rates at 6% to 6.5% by the end of next year.”

My Take:

For those who invested in Aussie dollars,they must be laughing themselves blind!

Coaching for Form 4 and 5 English Literature in 2010/2011

I wish to inform you that I will be coaching students who intend to pursue the English Literature paper privately in the SPM  in 2011 and those who need some serious coaching on the paper before sitting for the examination in 2010.

This is a great opportunity for you .

Currently, I am coaching students in SS2, Petaling Jaya  for this paper for the 2011 examination. I will start with the drama,"Julius Caesar", a majority of  the popular poems and the novel "Holes".

As there are 4 selections for most sections, I will cover at least 4 books to give you ample choice.

Anyone interested in this can contact me through my email as below:

jonjee0203@gmail.com

Najib: On The Chopping Block!

This report iis filed by Sheridan Mahavera in the  Malaysian Insider today. I think PM Najib is trying his best to fight against a Malay mindset that has been well entrenched for the last 40 years.


"SINGAPORE, April 6 — Prime Minister Datuk Seri Najib Razak claimed tonight that he has put his political career on the line by committing to purging rent-seeking and patronage politics in Malaysia’s economy.

He said this is because those who benefit from these practices are powerful and politically connected, and he hinted that they could even exert their influence in Umno, the party of which he is president.

Najib, who has made needs-based instead of race-based affirmative action an important plank of his administration, said that his approach has put him in a “dangerous” position.

“We don’t want rent seekers and the politics of patronage in our economy. I committed to that and it is dangerous because they are politically connected.

“But we have to help the Bumiputeras who need help, the Sarawakians, the Sabahans and the Orang Asli. Not just the Malays.

“Affirmative action has to be market-based, merit-based and needs-based because we want a more equitable society,” he told the audience at the Singapore Foreign Correspondents Gala Dinner here tonight."

We are with you, PM Najib!

JAKS: The Civil Suit Continues

JAKS informed Bursa KL on 26th March that at the case management of the civil suit between JAKS Resources Berhad and three parties, namely Perbadanan Urus Air Selangor Berhad, Syarikat Bekalan Air Selangor  Sdn Bhd and the State Government of Selangor, held on 25^th March 2010, the Kuala Lumpur High Court adjourned the matter to 5 April 2010 for mention to ascertain whether the matter can proceed by way of mediation.

Well, it looks like the first and second defendants refuses to resolve matters through mediation. As such,the High Court has fixed 10 April for case management.

What do you think will happen if the civil suit is to be settled through mediation? Will the outcome benefit JAKS? 

I guess there are strengths and weaknesses on both sides as to the arguments of the issues at stake in this civil suit. My take is all parties will benefit in one way or the other. I think JAKS which is the aggrieved plaintiff will stand to gain.

If the former agreement for the supply contract for re-piping is considered valid in substance, then JAKS will stand to gain at least from the remedy viewpoint which can bring in extraordinary profit to its current cash position. 

Assuming that this contract indeed subsists, JAKS can also use the  supply contract  as a gambit to win concessions from the 3 parties. As the State Government is now a Pakatan Rakyat Government and no longer the BN Government which defaulted on the supply contract, I think many things will be possible through mediation with the government of the day.

Now that mediation is history, let us watch how the trial proceeds on this long-standing civil suit.

Meanwhile, looking at the share price of JAKS these days gives one a feeling of hope. As other projects which JAKS is involved in like the project in Trengganu and China will start up very soon, it is quite easy to see that barring unforeseen circumstances, JAKS share price may just touch its par price of RM1.00  or go beyond that very soon.

The Pahang-Selangor Water Transfer Project which will yet be another booster for JAKS  in 2010 began today and should have some speculative effects on the price of JAKS from tomorrow.(7 April 2010)

So, do watch out for JAKS,won't you?

Budget Bust: What! Is this true?

I was shocked to read this news item field by Lee Wei Lian in the Malaysian Insider today (6 April 2010).

Is it true that we have busted our budget for 2009 as well as the current budget  2010 even as we enter the second quarter? This is getting to be serious if it is indeed true.

Let us read her report.

" KUALA LUMPUR, April 6 — DAP’s Lim Kit Siang has demanded an explanation for the RM12 billion in supplementary expenditure which he says will swell the government’s budget deficit to 7.9 per cent for 2009 from the official estimate of 7.4 per cent.

He also said that the other Bill — another RM12 billion in supplementary expenditure, this one for 2010 — will cause the government to miss its target of lowering the budget deficit to 5.6 per cent of GDP this year.
“With these two sets of supplementary estimates, Malaysia’s budgeting has again gone awry with the budget deficit in 2009 shooting to as high as 7.9 per cent of GDP in 2009 and over 7% in 2010,” he said in Parliament today while debating the supplementary estimates.

“A full explanation for this fiscal indiscipline and even irresponsibility should be given, as this is proof of imprudent control of public expenditure amidst inefficient utilisation of the nation’s financial resources.”
A larger than expected budget deficit may derail the Najib administration’s efforts to introduce fiscal reforms. The budget deficit was earlier estimated to have hit a record high of 7.4 per cent last year and reach 5.6 per cent this year.
The Fitch ratings agency had cut Malaysia’s local currency ratings to “A” from “A-Plus” in June last year due to concerns over the country’s growing budget deficit and said that Malaysia needed structural reforms to improve its long-term growth prospects and strengthen its credit profile.

There are two sets of supplementary estimates being presented in parliament — the second supplementary estimates for 2009 totalling RM11.36 billion, of which RM8.98 billion is for operating expenditure and RM2.39 billion for development expenditure, and the first supplementary estimates for 2010 totalling RM12 billion for both operating and development expenditure.
In his speech, Lim took aim at RM32 million allocated in the 2009 Development Supplementary Estimates for the purchase of aircrafts for the police.
“Apart from allowing the Inspector-General of Police and top police officers to work in style (it) makes no contribution whatsoever in the campaign to fight crime to make the country safe to work and play by Malaysians, tourist and investors,” said Lim. “The RM34 million would be better spent in purchasing say some 68,000 bicycles or 6,800 Honda cubs for all the police stations in the country to increase police visibility with frequent police beats, which is the best and most effective way to combat crime to keep the people in the streets, public places and private homes free from crime and the fear of crime!”

According to figures provided by DAP, if the supplementary bills are passed, the total expenditure for 2009 will hit RM229.25 billion against revenue of RM176.2 billion leading to a shortfall of RM53.05 billion, or 7.87 per cent of GDP.

The total spend for 2010 will be 203.57 billion against revenue of RM148.8 billion, or a deficit of 7.12 per cent of GDP."

I am getting worried. Is it caused by inflation? Why couldn't we review the budget and cancel irrelevant non-priority projects and expenditures?