Wednesday, September 20, 2017

Historical Revisionism: The MYR and SGD in the 1980s

I came across this a couple of weeks ago, but didn’t have time to address it then (excerpt):

A kleptocracy premium for the ringgit
P Gunasegaram

A QUESTION OF BUSINESS | Without a doubt the ringgit is historically rather weak even if the economy still continues to grow at a relatively healthy pace – the latest figures show a good growth of 5.8% for the second quarter of the year….

…So why does the ringgit remain weak, trading at levels which are weaker than at the height of the 1997/98 Asian financial crisis? What is it that is happening that keeps the ringgit level depressed? Perhaps it is due to a risk premium on the ringgit following the emergence of kleptocracy (re: 1MDB where as much as RM40 billion could be at risk, as thieves dip their fingers into money borrowed by a government company via bond issues) or apprehension over the ongoing spate of mega projects (re: the RM55 billion East Coast Rail Link whose cost may go to over RM100 billion….

Thursday, September 14, 2017

Housing, Inflation and the Cost of Living

I came across a couple of really good articles over the last couple of days on the subject of housing, inflation and GDP that I wanted to share (jump to the end for a summary of both articles).

First, the treatment of housing in the construction of the Consumer Price Index, which is commonly used to measure inflation (excerpt):

Headline inflation measures shouldn’t ignore costs of home ownership
Mojmir Hampl, Tomas Havranek 12 September 2017

Statistical offices of many countries measure the costs of home ownership by computing imputed rents, which are then included in headline inflation measures. This is the case for the US, Japan, and Switzerland, among others. In contrast, the harmonised index of consumer prices (HICP) – the EU’s most important inflation statistic – excludes owner-occupied housing, for the technical reason that imputed transactions are inconsistent with the definition of the HICP, and a more complex approach based on net acquisitions would be required (Eurostat 2012, 2013).….

…Because house purchases involve a substantial investment component, their inclusion in headline inflation makes many statisticians uneasy. Conceptually, however, homes are a special case of durable goods, because they provide a claim on a stream of future services. Cecchetti (2007), for example, showed the long-term capital gain from home ownership is very small….

Friday, September 8, 2017

Effective Exchange Rate Indexes: August 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


August was not a good month for the Ringgit, with drops posted across all six indices. Most of the losses were due to safe haven buying of the JPY and EUR, along with skepticism over the trajectory of US policy, both fiscal and monetary. The result was a -1.21% mom decline in the Narrow Nominal Index and a –1.17% drop in the Real Narrow Index.

On a bilateral basis it was a mixed bag, with gains recorded against 7 out of 15 currencies. The biggest drops were against the EUR (-2.31%), the JPY (-2.21%), the CNY (-1.42%), the AUD (-1.30%), and the THB (-1.26%). The largest gains were against the PHP (+0.84%) and the GBP (+0.47%).



  1. Indexes have been updated to August 2017
  2. CPI deflators and forecasts have been updated for July/August 2017
  3. Trade weights have been updated to 2Q2017, which entails revisions for Mar-Jul 2017

Wednesday, September 6, 2017

Guys, This Argument Is A Total Waste Of Time

YB Rafizi Ramli is claiming that income tax collection has exceeded the rate of growth of the economy (excerpt, emphasis added):


…Maknanya, dalam tahun 2017 ini pentadbiran Dato’ Seri Najib dijangka akan mengutip hampir sekali ganda lebih banyak cukai pendapatan (pada jumlah RM112 bilion) berbanding kutipan tujuh tahun lalu iaitu 2010 semasa beliau mula-mula menjadi Perdana Menteri (pada jumlah RM60.3 bilion).

Malah, kenaikan purata tahunan sepanjang tempoh 2010 ke 2017 (disebut cumulative annual growth rate atau CAGR) adalah 11%, iaitu kadar bertambahnya kutipan cukai tahunan secara purata di antara 2010 ke 2017 sebanyak 11% setiap tahun….

…1. Pertumbuhan ekonomi negara hanyalah sekitar 5% sahaja dalam tempoh yang sama. Jika ekonomi tumbuh hanya 5%, maknanya rakyat tidak merasa kenaikan gaji yang mendadak dan peniaga juga tidak merasa keuntungan yang mendadak yang membolehkan LHDN mengutip cukai yang lebih tinggi

Tuesday, September 5, 2017

Teaching Moments

Angst over GST seems to be rising, or at least being more deliberately aired. I’m feeling like a broken record (for those under the age of 40, this is what that phrase means).

First up (except):

On Bruce Gale’s Najibnomics
By TK Chua

…The author wrote as if 1MDB, FGV and the controversial Arab donation are trivial matters. Are these not matters closely related to the poor governance, malfeasance and lack of confidence that the country is facing now? How else is the management of an economy perceived to be in good hands if not through the manner in which public finance is managed?

The author talked about “inherited” problems, such as public debt, which is strictly not the fault of the current administration. It was due to a single year’s pump priming in 2009 when the present prime minister first assumed office.

Perhaps it is time for the author to look further afield – at off budget agencies, public enterprises and GLCs, the massive loans of which are guaranteed by the federal government. Perhaps he should also look at new loans to be disbursed soon on new mega projects such as the ECRL and other gateways, the viability of which are deemed doubtful by many….

Monday, August 21, 2017

The (Un)affordability of Housing

I’ve been planning on posting this for a while now, but came across this article this past weekend, which provides the perfect entree (excerpt):

Property market bubble set to burst, says think tank

PETALING JAYA: The property bubble in Malaysia is set to burst, but the government must resist the temptation to intervene and allow market forces to coordinate supply and demand, says a think tank.

In an interview with FMT, the Institute for Democracy and Economic Affairs’ (IDEAS) senior fellow, Carmelo Ferlito explained the two “economic dynamics” which have resulted in the current property situation in the country, where the prices of homes are beyond the reach of most and the oversupply of such homes, has led to many being left unsold.

Figures from the National Property Information Centre (Napic) have indicated that as of the first quarter of 2017, some RM10.08 billion worth of residential units are unsold in Malaysia. This figure does not include serviced apartments, which have since 2015, been classified as commercial properties.

Friday, August 18, 2017

Housing Watch

BNM has a new microsite dedicated to providing info on the housing market, including info on the market, financing stats, and policy measures. Check it out here.

Chart of the Week: Healthcare Costs

The Edge has an article on medical inflation, citing a source claiming it will rise at a double digit pace this year. I hate to break it to people, but this has been the norm, both for Malaysia as well as globally.

Here’s the data, up to 2014 (in RM):


Monday, August 14, 2017

The Costs and Benefits of Immigration

Nick Rowe provides a concise framework for thinking through the issues (excerpt):

Thinking about Costs and Benefits of Immigration

I find this a useful way to organise my thoughts about the costs and benefits of immigration. It may work for you too. I start out with a neutral benchmark, where immigration has neither costs nor benefits for the original population. Then I think of different ways in which that neutral benchmark could be wrong. This post is just a list (no doubt incomplete) of things that might create costs or benefits from immigration. I make no attempt to say which is bigger. It depends.

I am writing this mostly for non-economists. I should warn you that the economics of migration is not my area. I'm a macroeconomist, and most economists who specialise in immigration are microeconomists. This may give me a different perspective.

In case you think it matters: I migrated to Canada from the UK 40 years ago (and to Quebec from Ontario 30 years ago). This may influence my perspective.

And for what it's worth: I think that Canadian immigration policy is probably in the same ballpark as the right immigration policy for Canada. Though it is probably different for different countries….

The situation in Malaysia is a little different – we have mainly guest workers, rather than immigrants, though this nuance requires little modification to the framework offered above. Worth a read.

Friday, August 11, 2017

Cognitive Dissonance: Singapore Fiscal Policy

I kept getting this promoted tweet on my Twitter feed over the last couple of days, from the Lee Kuan Yew School:

I usually don’t bother with promoted tweets, but curiosity eventually won over and I read the article. It’s a fair description of Singapore’s fiscal policy framework, although the part on the management of past reserves could have been expanded for clarity (there’s no mention of GIC or Temasek in there for example, or the endowment funds the government set up).

There is however, one part I’m in violent disagreement with (excerpt; emphasis added):

Thursday, August 10, 2017

Ringgit Futures in Singapore

BNM is upset:

BNM Stance on Ringgit Currency Derivatives Products in Offshore Market

The recent introduction of the ringgit futures at the Singapore Stock Exchange (SGX) and the Intercontinental Exchange (ICE) or ICE Futures Singapore is inconsistent with Malaysia’s foreign exchange administration (FEA) policy and rules.

The Malaysian ringgit is a non-internationalised currency and thus, offshore trading of ringgit, in any form whether as a non-deliverable forward traded out of offshore financial centres or as a futures, options and other derivative contracts on exchanges outside of Malaysia, is against Malaysia’s policy.

Bank Negara Malaysia (BNM) would like to remind all market participants to observe the existing FEA rules. Contravention of the FEA is an offence under the Financial Services Act 2013 and Islamic Financial Services Act 2013. Appropriate action under the law will be taken against any person that does not comply with prevailing rules and regulations. Foreign participants should access the onshore ringgit foreign exchange market to meet their financial needs, either directly with onshore licensed financial institutions or their Appointed Overseas Office (AOO).

Wednesday, August 9, 2017

Chart of the Week: RON95 Petrol Price Vs Volume

Malaysian consumers mostly responding to price signals (quarterly MYR average prices, log annual and quarterly changes):


When the administered RON95 price was raised in 2013, there was little change in demand growth. It was still running at roughly 5% per annum. However, when the oil price drop in 2014 started feeding through into retail petrol prices, there was a steep rise in demand. A bit of an oddity, considering that the economic situation was less than ideal – or maybe it was because outbound tourism became more expensive, so people took to domestic travelling more.

In any case, the volume has lately become much more sensitive to prices (a signalling effect from monthly/weekly price volatility? worth keeping track of). For 1Q17, there was a sharp drop-off in purchases of petrol. From my point of view that’s ideal – a Pigovian tax on petrol (like tacking on GST) would then have the desired effect on consumer behaviour.

One thing the charts above don’t show however, is just how much petrol Malaysians are consuming. It’s sobering (index numbers; 2010=100):


Consumption of petrol is 70% higher than it was in 2010, and 2/3rds of the increase has come over the past three years alone.

Technical Notes:

  1. RON95 retail prices from Galvin Tan’s blog and press anouncements
  2. Retail fuel volume data from the Quarterly Distributive Trade Index reports from the Department of Statistics