When growth is strong, interest rates should be adjusted. It should not be too low because it may create unnecessary wastage or inflation. In other words, less speculative activities. For example, when people are way too bullish, they may simply buy more properties, causing property bubble to build and when it become unsustainable, everything falls suddenly. When property bubble bursts, it will also cause instability with the banks. Lending would suddenly stop, creating panic among those who genuinely needed loans for their businesses and not for speculative activities. Most of the time, the central banks would take pro-active steps to ensure this does not happen.
Two have signalled that their move is coming soon. This meant that growth has been pretty good and thus the rates should increased to curb speculative activities. Both Janet Yellen of US Federal Reserve and Mark Carney of Bank of England has announced this direction. Of course, this does not mean the whole world is on the path of recovery. Remember Greece? The European Central Bank President Mario Draghi will keep the rock-bottom interest rates and ensure the bank’s monthly €60 billion (RM247 billion) asset purchases would continue until September 2016. In brief, support is necessary for the growth to continue.
China is not doing well, especially with regards to its stock market while Japan continues its massive quantitative easing asset-buying programme. Both are expecting slower growth. In Malaysia, some believed recession is coming but it’s more likely for a slower growth compared to 2014 instead. Bank Negara Malaysia is expected to maintain the Base Rate steady to be accommodative to economic growth. Inflation edged up recently but remain low. Keep reading and understanding. After all, when all these bigger economies or region catch a cold, it will inevitably affect smaller trading nations such as Malaysia. Be very careful because if it gets bad suddenly, property is very hard to let go immediately. Happy anticipating.
written on 20 July 2015
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