Australia’s central bank felt a coming boom in export earnings meant it could not delay a hike in interest rates earlier this month, leading investors to wager on a further rise by June at the latest.


The Reserve Bank of Australia (RBA) felt a hike to 4.25 per cent, the fifth in six policy meetings, was needed because surging prices for iron ore and coal exports would boost the economy more than expected just a few months ago.

The hawkish tone to the minutes of its April meeting led some investors and analysts to bet it may raise rates yet again by another 25 basis points as early as May.

“A swift move to get back to normal levels seems almost certain,” said Bill Evans, the chief economist at Westpac.

“We think that the next move will be in either May or June, and on balance, the very clear emphasis on the resources boom tips the scales towards May.”

The market seemed to agree that further rate rises should come sooner rather than later. The Australian dollar rose to US$0.9275 (RM2.97) after the minutes, from US$0.9256 before.

Implied rates showed the chance of a move in May edged up to 28 per cent, from 25 per cent, while interbank futures implied a 64 per cent of a hike in June.

The minutes showed the RBA thought at the April meeting that rates were “a little below average”, and that the April move was a step in the process of returning them to “normal” levels.

“The prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment,” the minutes said.

Many private-sector economists believe the “average” or “normal” level of rates that the RBA refers to is between 4.5 and 5.0 per cent.

That seemed to be in line with what the RBA thinks. Governor Glenn Stevens said last month rates may rise to between 4.5 and 5.0 per cent.

Yet, with the domestic economy growing so strongly, some economists predict the RBA may lift rates to beyond 5.0 per cent this year to shift policy settings to a tightening mode.

“The bank will inevitably pause at some point, but the boost to income from the boom in the terms of trade will see the cash rate lifted to 5.25 per cent by the end of this year and 6.25 per cent by the end of next year,” said Felicity Emmett, an economist at RBS.

That is more hawkish than the market’s bets for rates to rise to 5.0 per cent in 12 months time .

A record mining boom 

A healing world economy that is lifting factory production, as well as China’s insatiable demand for commodities, have helped Australian miners to win steep price hikes for iron ore and coal, the country’s two biggest exports.

Iron ore prices alone are set to rise 90 per cent or more this year, delivering extra export earnings worth perhaps two percentage points of Australia’s gross domestic product.

So big is the windfall that some analysts are calling it Australia’s biggest mining boom on record.
In line with that, analysts expect Australia’s terms of trade, or the amount earned from exports for every dollar spent on imports, to grow between 15 and 20 per cent over the next year.
That is far bigger than what the RBA anticipated in February, when it predicted growth of around 5 per cent or less.

Despite the trade surprise, the RBA stuck to its forecast for 2010 growth to come within trend levels, and for inflation to be at 2.5 per cent, right in the middle of its 2.0-3.0 target range. But some analysts reckon the RBA may soon have to raise its forecasts since the economy could well be growing above trend.

“It seems blindingly obvious that the Australian economy is already growing above trend - the unemployment rate falling for the past six months is as good an indicator of this as anything,” said Peter Jolly, an analyst at National Australia Bank who sees rates at 6.0 per cent by the end of 2011.

“Very soon they will need to shift their rhetoric and logic and start talking about taking interest rates to restrictive levels,” he said.

Hulu Selangor: Now Its Two for the Road

Well, as expected, the two independents chickened out and withdrew, leaving only the BN and the PR to sling it out.

Since nomination day, many things have happened. Some politicians got wounded on barbed wires and as the campaign started, Zaid got hit below the belt when focus was made of his drinking habit. This is anathema to Islam and BN wanted to capitalised on this big-time. The Election Commission have asked BN to take down such posters showing Zaid drinking alcohol.

On both sides, the big guns are coming and going. When Anwar left for Sibu, in came Hadi and now Guan Eng and Tok Guru Nik Aziz is on his way there too. On the BN side, Ibrahim Ali has made camp in Hulu Selangor with his Perkasa-leaning friends. PM Najib and the two independents that went with him to the US Parliamentary caucus will also be showing their faces in Hulu Selangor.


It  looks like we are reaching the climax of the campaign period.

An interesting  thing I read was there are yet to be posters of Kamalanathan in the Hulu Selangor constituency. Is something amiss here?

Malaysia: A Looming Debt Burden at the Bend

The World Bank issued its warning to Malaysia. A rising debt burden will cause possible damage to her economic growth potential unless it implements tough reforms and tackles its subsidy regimes.

Are the economic planners taking heed or this warning or are we still on that Cloud 9 euphoria of Malaysia Boleh?

In a Reuters report today (19th April), the World Bank has froecast in a  report presented in Kuala Lumpur that Malaysia could grow by as much as 5.7 per cent this year but said that rate could fall back to as little as 4.2 per cent annually if reforms were not implemented.

PM Najib has pledged to restructure subsidies, introduce new taxes and tackle the country’s race-based system of economic preferences, but he continues to back-pedal i n the face of immediate political consideration; backing off some key tax and subsidy reforms recently.

“A stalling of the reform momentum would however cause an incremental loss in competitiveness, translating into slower growth of 4.2 per cent in the medium term and adding upward pressure on the government debt-to-GDP ratio,” the bank said.

Although Malaysia’s ability to finance its public sector deficit is not in doubt due to the country’s strong domestic bond market, the bank warned that government debt would continue to rise.

The World Bank’s baseline forecast shows that government debt will rise to close to 60 percent of gross domestic product, but warned that it could go higher without strong economic growth and the implementation of reforms such as cuts to subsidies and a new goods and services tax.

Subsidies cost Malaysia RM24.5 billion in 2009 out of total operating spending of RM160.2 billion.
Plans to cut subsidies on fuel have recently been deferred, causing investors to fret that Najib, whose government is politically weak, will not follow through on reforms.

“Malaysia’s competitive position in the global market place is expected to slip and growth could fall to levels averaging at 4.2 per cent over the projection horizon. As a result, the debt level would accelerate to close to 70 per cent of GDP in 2015,” the bank said.

Do we have the will and courage to save the economy?

Hulu Selangor' s Four For the Road

Its nomination day Saturday for candidates planning to contest the April 25 Hulu Selangor by-election.

Nomination opened at 9am and closed at 10am with an hour for objections.

It is a four-corner fight pitting PKR's Zaid Ibrahim agaainst BN's Kalamanathan and 2 independents. One lady wannabe independent got shut out by the police and could not stand as a candidate so it seems.

There are 64,500 registered voters in Hulu Selangor, with 63,701 regular voters and 799 postal voters.Of the total, the Malays make up the majority with 34,020 voters or 52.7%.

The next largest group is the Chinese with 16,964 voters (26.3%) followed by the Indians at 12,453 voters or 19.3%.

This is going to be an interesting fight. A phone in poll by NTV7 tonight showed PKR is a shoo-in at over 90% of the responses.

Let me draw a scenario of the possible outcome.

The two independents  have little to fight for without a manifesto and a machinery behind them. They are spoilers and are likely to lose their deposits.

Unless something untoward happens  in the run-up to polling day, it looks like a weak BN will be responsible for its own defeat.

There are so many issues coming up or already is political fodder for the PKR to work on and for the voters to digest.

Let me list the potential bugbears for the BN.

1. New compromise candidate who is an unknown in town. Like PKR's Zaid, he is also a stranger in town.
2. The campaign period of 7 days is just too short for Kamalanathan to get the know the local voters
3.The Hulu Selangor area is too big to cover in a week
4.His last minute candidature reflects badly on the MIC. He will lose protest voters who will likely spoil their votes,do not appear on polling day or worse, vote for the opposition and independents
6. He is unlikely to get the support of the younger set of voters who are most likely anti-establishment.
7. He is unlikely to get Felda votes as the problems there have not been successfully resolved.
5.He will face the problems of national issues such as APCO,corruption,lack of transparency, the situation of the Interfaith panel, religious issues and the Teoh Beng Hock trial.

The things going for him will be

1. The postal voters possibly of the police stationed in the Police College in in Kuala Kubu Bahru.
2. A big chunk of the traditional pro-government Malay voters including government civil servants.
3. Some senior Chinese voters who will always be pro-government.

As for Zaid,there should not be many problems. The things going for him will be:

1. The largese of the Selangor State government in giving land titles. This will work well in Chinese dominated areas in new villages and in the township of Kuala Kubu Bharu. MCA with all its brand new 'gungho marketing' will not dent one bit the intent of voters to vote opposition.
2. Zaid is a national figure and has been perceived as upright and principled.
3. Zaid is a potential leader to lead the Pakatan Rakyat in case Anwar should be jailed.
4.The power of the alternative media, blogs, cellular phones, Face-book and Twitter.

Between BN and PKR, Kamalanathan is definitely the underdog. He claimed so himself today. Could he be pleading for sympathy votes? He is not only facing a difficult foe but more importantly, there is going to be sabotage against him both from disgruntled UMNO and MIC members. So, the candle is burnt for him at both end. He is in a hot place!

We will see what else develop till polling day.

Axiata: Prolonging Debt

KUALA LUMPUR, April 16 — Axiata Group Bhd’s wholly-owned subsidiary, Axiata SPV1 (Labuan) Ltd, has proposed to issue senior unsecured US$300 million (RM958.5 million) 10-year fixed rate guaranteed notes.
Axiata, one of the largest Asian telecommunication companies focused on high growth low penetration emerging markets, will unconditionally and irrevocably guarantee the notes.
The issuance was part of ongoing efforts to improve the group’s capital management post demerger and would allow Axiata to have a longer debt maturity profile, the company said in a statement today.
“The net proceeds of the issue, which represents the first US dollar bond offering by a Malaysian corporate in 2010 to date, will be used for the purpose of refinancing the existing borrowings of Axiata’s subsidiary and for the general corporate purposes of the group,” it said.
It said the notes would not be registered under the United States Securities Act of 1933 (as amended) and would be offered outside the United States in accordance with Regulation S under the Act.
“Applications have been made to list the notes on the Stock Exchange of Hong Kong Ltd and the Labuan International Financial Exchange,” Axiata said.
In the statement, Axiata President and Group Chief Executive Officer Datuk Seri Jamaludin Ibrahim said the exercise reinforced Axiata’s commitment to optimise the group’s capital structure.
“In a short space of time, Axiata has gone from deleveraging during the financial crisis to being rated investment grade, enabling us to tap into new sources of funding, namely the international debt capital markets, thus providing the group further financial agility for long-term growth.
“Furthermore, the exercise will enable Axiata to remain relevant and visible on the radar of investors,” he said.

Soros Warns the World!

This is an interesting report from Bloomberg.

Railway porter-turned-billionaire financier George Soros has delivered a stark warning that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.

The man who "broke" the Bank of England (and who is still able to earn $US3.3 billion in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learnt.

Mr Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned that modern economics had got it wrong and that markets are not inherently stable.

“The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods,” he told a meeting hosted by The Economist in London on Tuesday night.

“Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.

“We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount."

Slow recovery

US Federal Reserve chief Ben Bernanke delivered his own warning on Wednesday, saying the pace of the US recovery would not be quick and that "significant" time would be needed to claw back jobs lost in the recession.

"If the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8½ million jobs that were lost [in the US] during the past two years," he told lawmakers.

The Fed chairman said data suggested demand would be enough to "promote a moderate economic recovery in coming quarters", as the US continues its tough slog out of recession.

He pointed to improved consumer spending - traditionally a strong driver of the US economy - as one factor aiding the recovery.

"Going forward, consumer spending should be aided by a gradual pick-up in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability."

But he warned that the economy continued to face strong headwinds.

"I am particularly concerned about the fact that, in March, 44 per cent of the unemployed had been without a job for six months or more."

Echoing recent comments that the world's largest economy must act swiftly to curb its soaring budget deficits, Mr Bernanke took his tough message straight to Congress.

He warned lawmakers they faced "difficult choices" in cutting the country's deficit and that action could not be delayed.

"Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult," he told them.

He warned "the poor fiscal condition of many state and local governments" remained a restraint on the pace of economic recovery.

Debt spiral

In his speech at the City of London's Haberdashers' Hall, Mr Soros also spoke out against the international community's efforts to help debt-laden Greece recover, London's Daily Telegraph reported.

The financier said the International Monetary Fund and the eurozone countries that are stepping in to lend money to Greece had proposed a rescue package that could still send the troubled nation into a debt spiral.

"It is a question of solvency," Mr Soros said.

"If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency."

He said the package, which was finalised on the weekend, should offer concessional interest rates, rather than the 5 per cent on offer from eurozone countries and 2.7 per cent from the IMF.

"While 5 per cent is better than what the market is willing to offer, a rescue package should offer concessional rates," he said.

"If they don't [reach their debt reduction target], they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a debt spiral.

"That is the danger that is still remaining."

Mr Soros also called for the "oligopoly" formed by the four largest banks in the United States to be broken up.

He said he was supportive of the so-called Volcker rule, an American proposal to block banks from taking part in proprietary trading and owning hedge funds or private equity operations, Bloomberg reported.

Hulu Selangor: PKR's Do or Die!

Well, after all the hullabaloo, Samy Velu and a big proportion of the MIC divisions took the bitter pill and swallowed it with unwarranted saliva. Again, the UMNO boys called the shots. Again, MIC they felt cheated and belittled and left our of the big league.

For once they felt like the PPP. It looks like the beginning of the end for the MIC which cannot even put up their own choice of candidate in so-called 'MIC allocated seats'. For Samy Vellu, he had to announce the time-line when he leaves the post of MIC president in 2012.

Let us shift back to the crux of the post. Is this the Waterloo for PKR and Zaid Ibrahim? Is this a referendum on the PKR-led government in the state of Selangor by Khalid Ibrahim? With all the in-fighting between MIC and UMNO, will a stranger called Kamalanathan  please stand up to claim his candidature of BN? Apparently he is also not from Hulu Selangor.

The Hulu Selangor seat is for the BN to win and the PR to lose. After the serious dent to the PKR when so many MPs and State Assemblymen have deserted the political battlefield to claimed independence, the apparent signs are PKR is undergoing a baptism by fire. Will they lose the Hulu Selangor seat as well?

Let us look at BN first. This compromise candidate is a bad omen. It is bad for Samy Velu. It is bad for the MIC division leaders in Hulu Selangor. We just do not know how the voters in MIC or the larger public is going to vote. If the voter turn-out is bad, credit it to protest from both MIC and also UMNO. Do not expect MCA,Gerakan and PPP to do magic here. They cannot even save their political souls.

As for the PKR, Zaid is a more commendable candidate. His principles has been shown to be above board. As for his wealth, he did make money through his earlier UMNO relationship. However, the money he earned is above board. He is no stranger to politics . He commands the respect of the public particularly those who wants to see transparency and an end to corrupt practices. That he is a stranger to Hulu Selangor cuts no water. He will have political representatives stationed at his political office if he wins the seat.

When nomination day comes by expect at least 2 independents. We do not know who have planted them here. They could also be selling themselves to the highest bidder.

There could also be a spoiler from Hindraf. This could spell trouble for both PR and BN.

So, it is an uphill battle for BN's Kamalanathan who is as yet unknown to Hulu Selangor. With the competing factions and friction between UMNO and MIC and intra-MIC rivalries, this Johnny-come-lately may lose as a consequence. If he wins, it will be marginal.

As for Zaid, a loss is not good for him personally. The same goes for Anwar and Khalid.

Let us see further developments until polling day on 25 April 2010.