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Business Recorder
01-08-2025
- Business
- Business Recorder
Discount rate remains unchanged
EDITORIAL: The Monetary Policy Committee (MPC) under the chairmanship of Governor State Bank of Pakistan Jameel Ahmed decided to keep the discount rate unchanged at 11 percent. This has surprised many, given the macroeconomic data routinely released by government entities in recent weeks and months. Consumer price index (CPI), or headline inflation, reported to be the prime determinant of the discount rate, has been declining since November 2024 — from 4.9 percent, to 4.1 percent in December, 2.4 percent in January, 1.5 percent in February, 0.7 percent in March and 0.3 percent in April. The MPC reduced the discount rate to 13 percent on 16 December, 12 percent on 12 January and 11 percent on 5 May even though the decline in CPI was much sharper during these months than previously. True that CPI rose to 3.5 percent in May and declined to 3.2 percent in June this year; however, the rate has been kept unchanged since May, indicating that the CPI may not be the primary determinant of the discount rate. Core inflation has also been steadily declining since March this year — from 8.2 percent to a low of 6.9 percent in June. The Monetary Policy Statement (MPS) noted that high frequency economic indicators were depicting a global economic recovery (and not just in Pakistan) — a stance that is clearly at odds with the International Monetary Fund (IMF). According to the IMF, 'forecasts for global growth have been revised markedly down compared with the January 2025 World Economic Outlook (WEO) Update, reflecting effective tariff rates at levels not seen in a century and a highly unpredictable environment.' The MPS further claimed notable year-on-year growth in automobile sales, fertilizer off-take, credit to private sector, imports of intermediate goods and machinery — sales and purchases that are not indicative of higher output, but a decline in inventories while post-Trump's inauguration the dollar lost value against all major currencies except the rupee, which accounts for lower import costs. The MPS makes reference to purchasing manager's index in recent months for the first time which begs the question as to how it is calculated. One may assume that it is part of the technical assistance (TA) extended by the IMF to Pakistan to deal with 'important shortcomings that remain in the source data available for sectors accounting for around a third of GDP while there are issues with the granularity and reliability of the Government Finance Statistics (GFS).' The September IMF documents note that the TA will support government efforts to improve GFS and formulate a new Producer Price Index. It is relevant to note that Business Recorder was informed by the Pakistan Bureau of Statistics that the TA began in July 2025 and will not be completed till end June 2026. The MPC appeared to be unaware of the fact that the large-scale manufacturing (LSM) growth was at negative 1.52 percent July-April 2025 (the most recent data released) against 0.26 percent in the comparable period of the year before; private sector credit rose from 323.5 billion rupees in 2023-24 to 676.6 billion rupees July-June 2024-25 with the rise associated with the stock market rather than the LSM. And maintained that barring flood-related risks agriculture sector is expected to recover in the current year — a risk that compromised the target last year and the recent ongoing floods may well belie this optimistic projection. In relation to the discount rate decisions taken by the MPC it is appropriate to cite the observation by the IMF in its May 2025 documents uploaded on its website titled the first review under the extended arrangement: 'while the reduction in headline inflation has been impressive, core inflation remains elevated, and the SBP should continue to calibrate monetary policy carefully, removing monetary constraint gradually and contingent on clear evidence that inflation is firmly anchored within SBP's target range'. In other words, the decision to remove monetary constraints on repatriation of profits under contractual obligations (in spite of reserves on 18 January cited at USD 14,456.6 million though the Governor SBP noted during his press conference that rollovers account for USD 16 billion) may be the primary reason for the Fund staff not to give the green light to the MPC to reduce the discount rate. The Governor SBP held a press conference after the MPC meeting, which must be appreciated as it is in line with the Fund recommendation to undertake effective communication 'as it will help the public better understand the MPC's reaction function and build support for policy decisions.' Sadly, it is fairly obvious that he failed to convince the naysayers in the industrial community that the decision to keep the rate unchanged was an appropriate one. The central bank seems to have taken a cautious approach with a view to ensuring price stability amid a surge in energy prices that has worsened the inflation outlook. Copyright Business Recorder, 2025
NZ Herald
18-07-2025
- Business
- NZ Herald
NZ sharemarket dips despite strong US and Australian gains
Strength on Wall Street followed stronger-than-expected economic data, including a 0.6% gain in retail sales in June after a 0.9% fall in May, which gave more weight to the view the US Federal Reserve will not change rates any time soon. Australian stocks were also sharply higher towards the end of the New Zealand business day, driven mostly by resource sector stocks. 'It's a bit surprising that Australia is up so strongly, but our market was not participating at all after another quiet news day,' Salt Funds managing director Matt Goodson said. Weighing on the index was Fisher & Paykel Healthcare, which will hold an investor day in Melbourne on Wednesday, the stock finishing 21c or 0.57% down at $36.54. Fletcher Building, despite releasing a downbeat quarterly report, bucked the trend to end 9c or 3.03% higher at $3.06. Goodson said Fletcher's gains showed investors were willing to look through the data and take a long-term view. 'Markets are forward-looking and always trying to look through to a change in the cycle, which will occur at some stage as interest rate cuts kick in,' he said. Auckland International Airport dropped 12c to $7.66 after firming yesterday. Research firm Morningstar noted the Ministry of Business, Innovation and Employment had been reviewing the regulation of airport services and had said it was not considering a legislative change for the airport. 'The bottom line: we maintain our $9.30 fair value estimate,' Morningstar said. 'Shares are undervalued. 'We think the market is unjustifiably pricing either lower returns on regulated expenditure or weakness in unregulated businesses, like retail and car parks,' Morningstar said. Among the small-cap stocks, the lower-tier aged-care firms performed strongly. Leading the charge was Third Age Healthcare, up 40c or 10.7% at $4.15. Promisia Healthcare gained 5c (9.6%) to 57c after releasing a performance update showing group care occupancy for June 2025 averaged 87%. In the same camp was Radius Healthcare, up 3.5c (9.6%) at 40c. It was the last day of trading for NZ Wind Farms, which is being taken over by Meridian. 'It really continues a trend of smaller companies delisting and of there being no real pipeline of new ones coming on, which has to be a concern,' Goodson said. 'If you're not in the index, it's very hard for these small companies to get attention.' Looking ahead, the Consumers Price Index for the second quarter is due on Monday. ANZ expects the index to have lifted by 0.8% quarter-on-quarter, with annual inflation accelerating to 2.9%. The bank said the data would need to show a 'sizeable upside surprise' for the Reserve Bank to take an expected 25-basis-point rate cut off the table at the release of its Monetary Policy Statement of August 20. Jamie Gray is an Auckland-based journalist, covering the financial markets, primary sector and energy. He joined the Herald in 2011.
Malaysian Reserve
14-07-2025
- Business
- Malaysian Reserve
BNM lowers OPR amid trade, demand risks
Move seen as early buffer, not start of easing cycle — analysts split on further cuts by RUPINDER SINGH IN A move that had been anticipated by a narrow majority of analysts, but still marked a significant shift in tone, Bank Negara Malaysia (BNM) reduced the Overnight Policy Rate (OPR) by 25 basis points (bps) to 2.75% on July 9. This is the central bank's first rate cut since July 2020, and comes amid growing external uncertainties, including the looming implementation of US tariffs and fragile global demand conditions. The decision signals a clear shift toward a more accommodative monetary stance, driven by the need to preemptively support growth while keeping inflationary pressures in check. In its Monetary Policy Statement (MPS), BNM said the rate cut was a 'preemptive step to safeguard the domestic growth trajectory amid contained inflationary pressures'. The Statutory Reserve Requirement (SRR) was left unchanged at 1%, following a 100bps reduction in May that injected about RM19 billion into the banking system. BNM now emphasises the SRR as a liquidity tool, not a signalling mechanism. Since the SRR cut, the 3-month Kuala Lumpur Interbank Offered Rate (KLIBOR) has eased from 3.7% to 3.5%, signalling improved interbank funding conditions. Why the Cut Now? The move comes against a backdrop of increasing downside risks to Malaysia's growth. The Ministry of Investment, Trade and Industry (MITI) is currently in negotiations with US officials to forestall a 25% tariff imposition on Malaysian exports — a deadline now extended to Aug 1. BNM's MPS flagged that the balance of risks remains tilted to the downside, particularly due to 'slower global trade, weaker sentiment, and lower-than-expected commodity production.' Public Investment Bank Bhd (PublicInvest Research) noted that while the July MPS retained a cautious tone, the language was 'toned down slightly' from earlier statements, replacing more alarming references to a 'deeper economic slowdown' with a cleaner framing of persistent, but not catastrophic, risks. UOB Global Economics added that although domestic growth has been relatively resilient, 'the eventual tariff landing remains fluid, reflecting ongoing uncertainties in the negotiation process'. This introduces a great deal of ambiguity in Malaysia's export outlook, particularly for sectors such as electrical and electronics (E&E) and semiconductors. At the same time, external trade data has started to show signs of deceleration. Exports are expected to grow by just 3.5% this year, down from 5.7% in 2024. A combination of slowing global demand and anticipated restrictions on artificial intelligence (AI) chip shipments to Malaysia and Thailand by the US could further weigh on sentiment and performance in key export industries. On the domestic front, although labour markets have held up and household consumption remains stable, growth momentum has become increasingly reliant on domestic investments and policy-driven spending. According to PublicInvest Research, 'Growth is expected to be supported by resilient domestic demand, with employment and wage growth, particularly within domestic-oriented sectors, alongside income-related policy measures, continuing to support household spending.' BNM appears to be using the current window — before the global slowdown becomes more entrenched or policy uncertainty in the US crystallises into real economic fallout — to build buffers. As UOB noted, 'Taken together, we think incoming data (particularly GDP and external trade), developments of global tariff policy and geopolitical events are key determinants for the future rate path.' This backdrop has opened up space for BNM to make a measured cut without triggering volatility in capital flows or compromising financial stability. The central bank still maintains a positive real-interest rate environment, suggesting that it retains further room to ease if needed, without falling behind the curve on inflation or currency risk. Implications for the Banking Sector According to Hong Leong Investment Bank (HLIB Research), the OPR cut will exert near-term pressure on banks' net interest margins (NIMs), given that loan repricing tends to occur faster than deposit repricing. Banks with a higher proportion of floating-rate loans such as Affin Bank Group Bhd and Bank Islam Malaysia Bhd (BIMB) are expected to be more adversely affected. Conversely, AMMB Holdings Bhd and CIMB Group Holdings Bhd, with more balanced deposit structures and loan books, are likely to weather the rate cut with minimal disruption to margins. HLIB Research estimates that the 25bps cut will result in a sector-wide NIM compression of 3bps-4bps and a corresponding 2%-3% decline in profit forecasts, barring any mitigating factors. However, banks had already begun adjusting fixed-deposit rates downwards by 5bps-20bps since April, effectively preempting part of the OPR move. This proactive stance may soften the immediate earnings impact. Moreover, HLIB Research sees three mitigating factors cushioning the sector from a more significant drag: (i) The recent SRR cut has injected approximately RM19 billion in fresh liquidity into the system, giving banks more room to manage funding cost pressures. (ii) The easing of deposit competition is expected to lower funding costs further. As promotional fixed-deposit rates normalise, banks will likely benefit from a more stable deposit base. (iii) The banking sector has pivoted to a more disciplined approach in loan expansion and funding strategies, improving asset-liability matching and capital efficiency. Importantly, the sector's resilience is underpinned by healthy capital buffers and ample preventive provisioning. With common equity tier 1 (CET1) ratios for major banks well above regulatory minimums, and loan loss coverage remaining elevated, the system is adequately cushioned against near-term earnings volatility. Historical patterns also suggest that NIM compression after an OPR cut tends to be short-lived. Following the last rate cut in July 2020, sector NIMs actually expanded in the quarters that followed, due to the lagged repricing of deposits and improved bond portfolio valuations amid falling yields. Public Bank and Malayan Banking Bhd (Maybank), which traditionally maintain a conservative asset profile, may experience less earnings volatility compared to high-beta plays like CIMB Bank or RHB Bank Bhd. That said, CIMB Bank and AMMB are viewed as attractive rebound proxies due to their higher operating leverage and more cyclical loan books. Looking ahead, HLIB Research maintains its 'Overweight' stance on the banking sector. 'We view the OPR cut in early second half of 2025 (2H25) as a positive development, as it helps to remove one of the key share price overhangs,' it said. CIMB, AMMB and RHB Bank are its top picks, offering a mix of cyclical upside and defensible balance sheets. The broader sector is also supported by a 5.4% average dividend yield, which offers a valuation cushion in a volatile market. Nonetheless, risks remain. A sharper-than-expected economic slowdown, prolonged deposit pricing pressure, or an escalation in global trade tensions could temper the sector's resilience. Investors will be closely monitoring the upcoming earnings season to assess how individual banks are managing margin pressure and loan growth in the new rate environment. What's Next for Policy? Economists remain divided on whether BNM's latest move marks the beginning of a broader easing cycle, or a one-off recalibration to address rising uncertainties. While the July policy decision reaffirms BNM's readiness to act preemptively, the central bank also signalled that future decisions will be data-dependent rather than part of a pre-set path. PublicInvest Research expects the current 2.75% OPR level to be maintained through year-end. 'We assess BNM's policy bias as conditionally accommodative, with any further adjustment contingent on a marked deterioration in global conditions or more pronounced domestic weakness,' it said. 'With real policy rates still in positive territory and inflation expectations well anchored, the move appears intended to provide an early buffer rather than mark the start of a full easing cycle.' UOB, however, continues to forecast one additional cut. 'The current risk assessment and economic landscape still support our view for an additional 25bps cut in the OPR to 2.50% by end-fourth quarter of 2025 (4Q25),' it noted. Two more Monetary Policy Committee (MPC) meetings remain, scheduled to run over two-days, starting on Sept 3 and Nov 5. Analysts say the 2Q GDP release on July 18, the government's updated growth forecast later this month, and the tabling of the 13th Malaysia Plan (13MP) on July 28 will be key inputs into BNM's next decisions. Developments in US trade negotiations and potential tariff actions will also be closely watched. BNM has noted that there is still policy space should the need arise. Analysts interpret this as room for a further rate cut if growth falters or global volatility intensifies. Until then, BNM is expected to remain in wait-and-see mode, guided by data and external developments. Market watchers will also be parsing BNM's upcoming quarterly Economic and Financial Developments report for deeper insight into the central bank's internal projections. Till then, investors can expect BNM to stay in a data-driven wait-and-see mode, with monetary tools calibrated to balance resilience and responsiveness. Markets, Growth and Broader Outlook Malaysia's economic growth trajectory remains intact, though downside risks have become more pronounced. PublicInvest Research maintains its 2025 GDP forecast at 4.2%, down from 5.1% in 2024, reflecting a moderation driven largely by external headwinds. UOB, meanwhile, anticipated 2Q GDP to ease to 3.8% year-on-year (YoY) from 4.4% in the 1Q, citing a slowdown in exports and manufacturing output. Despite these external drags, domestic fundamentals remain resilient. Employment levels continue to improve, with the unemployment rate forecast to dip further to 3.2% this year. Wage growth, particularly in the domestic-oriented sectors, is expected to support private consumption alongside targeted government fiscal measures. 'Growth is expected to be supported by resilient domestic demand, with employment and wage growth continuing to support household spending,' noted PublicInvest Research. On the investment front, both private and public sector activity is underpinned by multi-year project pipelines and rising realisation rates of previously approved investments. Infrastructure rollouts under the 12MP and catalytic projects tied to the upcoming 13MP are also likely to lend support to construction and services segments in the 2H. That said, much hinges on policy clarity and investor confidence. The tabling of the 13MP in Parliament on July 28 is expected to offer a strategic roadmap for medium-term development, fiscal consolidation and industrial trans- formation. Investors will be scrutinising the plan for details on infrastructure priorities, digital economy integration and green transition funding mechanisms. Externally, the picture remains clouded by geopolitical tensions, volatile commodity markets and uncertainty over US trade policy. The 90-day pause on reciprocal tariffs by the US, which expired on July 9, has been extended to Aug 1. According to PublicInvest Research, a letter from the White House dated July 7 reaffirmed the deadline, though the door remains open for further negotiations. BNM has acknowledged these uncertainties but continues to believe that structural reforms and ongoing fiscal consolidation efforts will anchor market confidence. Meanwhile, Malaysia's broad money supply (M3) rose 2.7% YoY in May, indicating adequate liquidity in the system. Core inflation eased to 1.8% YoY in May, down from 2% in April, supporting BNM's view that inflationary pressures remain contained. Despite subsidy rationalisation and Sales and Service Tax (SST) expansion, second-round effects remain limited. In capital markets, the FTSE Bursa Malaysia KLCI has remained range-bound in recent weeks, reflecting a wait-and-see stance by investors. The financial sector, buoyed by attractive valuations and strong dividend yields, remains a key pillar of support, while defensive sectors like utilities and healthcare have outperformed amid broader risk aversion. Currency-wise, the ringgit's year-to-date (YTD) appreciation of over 5% against the US dollar reflects improving investor sentiment, bolstered by a narrowing policy rate differential with the US Federal Reserve and positive trade balances. Analysts expect the ringgit to trade within the 4.10-4.25 range through year-end, barring major external shocks. Looking forward, Malaysia's economic narrative for the rest of 2025 will be defined by its ability to sustain domestic demand, maintain policy credibility, and navigate external risks. 'We expect domestic activity to remain supported by ongoing reforms and investment execution,' said UOB. 'However, the external environment will remain fluid, and Malaysia's exposure to global trade and capital flows means the outlook could shift quickly.' In sum, while the OPR cut sends a clear message of growth support, it also sets the stage for a careful recalibration of macro policy amid persistent volatility. The weeks ahead, marked by economic data releases, policy announcements, and international developments, will be pivotal in shaping market sentiment and policy trajectories. This article first appeared in The Malaysian Reserve weekly print edition
Business Recorder
08-07-2025
- Business
- Business Recorder
MVT more than doubled in FY25
ISLAMABAD: In the outgoing financial year, the motor vehicle tax increased by more than 100 percent in both urban and rural areas. The statistics released by Pakistan Bureau of Statistics (PBS) shows that the motor vehicle tax increased by 169 percent and 127 percent in urban and rural areas, respectively. In urban areas, water supply charges was up by 15 per cent, liquefied hydrocarbons by 14 per cent, house hold textiles 14 per cent and drugs and medicines by 13 per cent in 2014-15; whereas electricity charges showed a decline of 30 per cent, textbooks 7.8 per cent, and motor fuel a cut by 1.9 per cent. In rural areas, the motor vehicle tax substantially increased by 127 per cent, dental services by 27 per cent, drugs and medicines by 15.3 per cent, recreation and culture by 13.2 per cent, doctor clinic fee by 12.8 per cent and education by 12.8 per cent. On the other hand, electricity charges were reduced by 30.2 per cent, textbooks by 11 per cent and motor fuels by 2.6 per cent. It may be mentioned here that compared to CPI of 3.5 per cent, the non-food non-energy inflation despite showing decline, in urban areas was still on a higher side with 6.9 per cent and in rural areas it was even higher at 8.6 per cent in FY25. The State Bank in its last Monetary Policy Statement acknowledged the fact that the core inflation (non food-non energy) declined marginally. In the statement it was further mentioned that the headline inflation increased to 3.5 per cent y/y in May from 0.3 per cent in April. This reversal largely reflected the phasing out of the favourable base effect from food prices, along with persistence in core inflation. The central bank projected that some near-term volatility in inflation is expected, before it gradually inches up and stabilises within the 5–7 per cent target range and because of this it has kept the policy rate unchanged at 11 per cent. This outlook; however, remains subject to multiple risks emanating from potential supply-chain disruptions from regional geopolitical conflicts, volatility in oil and other commodity prices, and the timing and magnitude of domestic energy price adjustments. Experts believe that the government's heavy reliance on indirect taxes does not allow substantial reduction in core inflation despite sharp decline in energy prices and stable exchange rate. Though the Federal Board of Revenue (FBR) has claimed that the share indirect taxes are around 60 per cent and 40 per cent of direct taxes, the experts are of view that indirect taxes account for 80 per cent of the revenue collection. They say contrary to FBR interpretation, withholding tax falls in the category of indirect taxes because the end-consumer eventually has to pay it. Experts say in the ongoing fiscal year the government instead of broadening the tax net, further increased the indirect taxes which further burdened the common man and is likely to increase their cost of living. Copyright Business Recorder, 2025
Business Recorder
19-06-2025
- Business
- Business Recorder
Maintaining the policy rate
EDITORIAL: The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 percent in spite of an increase in the Consumer Price Index (CPI) to 3.5 percent year-on-year in May 2025 (from 0.3 percent in April) — the highest since January 2024 when CPI was calculated at 2.4 percent — and more tellingly the Monetary Policy Statement (MPS) projected that 'some near term volatility in inflation is expected before it gradually inches up and stabilises within 5 to 7 percent.' The average CPI for the year 2024-25 was calculated by the Pakistan Bureau of Statistics (PBS) at 4.61 percent — lower than the projected increase next fiscal year. Core inflation declined to 7.3 percent last month (May), the lowest since May 2024. But in April 2025 core inflation was 0.1 percent higher than in May — at 7.4 percent — that may have been the basis for the MPS to refer to 'persistence in core inflation' though this so-called persistence was not evident in data from January to March 2025: 7.8 percent in January, 7.8 percent in February and 8.2 percent in March. The MPS noted that real interest rate remains adequately positive to stabilise inflation; however, if CPI had been used as a yardstick to adjust the discount rate (as it was during 2019 to 2022) then it should have been raised by 25 to 50 basis points and if core inflation was used as a yardstick then it could have been reduced by 25 basis points. This lends credence to the widely-held belief that the International Monetary Fund (IMF) did not approve any adjustment in the policy rate at this time — a decision that is inexplicable, given that the MPC met on 16 June (Monday) while a hike in domestic prices of oil and products was announced a day earlier (effective Monday) due to the rise in the international oil prices as a consequence of the ongoing Israel-Iran conflict and yet the MPS reads 'energy prices continued to remain lower than last year, mainly reflecting the impact of moderation in global oil prices' — an observation that does not justify the policy rate remaining unchanged from 16 June onwards. The influence of the IMF on the MPS is evident from its contention that 'economic growth is picking up gradually and is projected to gain further traction next year, supported by the still unfolding impact of earlier policy rate cuts,' which mirrors the IMF statement in the first review documents uploaded a month ago notably, 'the MPC's decision to hold the policy rate in their March 10 meeting was appropriate, allowing time for past rate cuts to feed through to the economy.' This growth of 2.7 percent in the outgoing year belies two macroeconomic indicators: (i) the negativity suffered by the large-scale manufacturing sector rose from negative 0.22 percent July-March 2023-24 to negative 1.47 percent in the corresponding period 2024-25 as per data uploaded by the Finance Division; and (ii) agriculture crops underperformed; however, PBS upped the livestock growth which faces challenges in terms of collecting accurate data (comprising a little over 14 percent of agriculture's total 24 percent contribution to GDP) and services again not credibly accounted for, given that it constitutes mainly wholesale and retail trade which mainly operates outside the legal economy. The MPS further notes that growth accelerated to 3.9 percent during the second half of 2024-25 compared to 1.4 percent in the first half, which was as per MPC expectations. However, there is little evidence of this growth spurt in the second half of this year. Keeping the policy rate unchanged may have repercussions on yet to be approved by parliament budget 2025-26, given that the 738.677 billion-rupee lower mark-up budgeted for next fiscal year from the revised estimates of the outgoing year (in spite of a massive rise in bank borrowing to the tune of 3.438 trillion rupees) may adversely impact the budget balance sheet. The MPS rightly noted two major positive macroeconomic outcomes: the completion of the first IMF review which led to a disbursement of one billion dollars that strengthened foreign exchange reserves (which remain largely sourced to debt); and primary surplus of 2.2 percent of GDP in the current year (a Fund condition that has led to an increased reliance on incurring debt/debt equity) budgeted at 2.4 percent in 2025-26, which will have to be reassessed if the discount rate is not lowered during the year though here the MPS has noted that this would reflect 'the evolving geopolitical situation in the Middle East and some ease in the US-China trade relations.' The SBP is tasked by the IMF to achieve what the Fund has noted in the first review: 'changes to central bank communication, particularly greater clarity on the MPC's assessment of the current and desired policy stance, have been welcome and should continue to help the public better understand the MPC's reaction function to incoming data, and guide expectations between meetings'. This can only be described as work in progress at this point in time. Copyright Business Recorder, 2025
