20120907 1108 Local & Global Economy Related News.

Bank Negara Malaysia (BNM) has decided to maintain the  overnight policy rate (OPR) at 3% yesterday. The decision was expected by all economists. In the statement, it said domestic demand will continue to support domestic economic growth.  Headline inflation is expected to remain moderate for the remainder of 2012 and into 2013. However, it said, upside risks to inflation could emerge should supply disruptions resulted in higher global prices for commodities.  The monetary policy committee will continue to carefully assess global conditions and their implications on the overall outlook for inflation and growth of the Malaysian economy, it said. (Bernama)

Motorists now have to pay RM3 per litre for  RON97 petrol after a price increase of 30 sen, from RM2.70 from today. Malaysian Petrol Dealers Association president Datuk Hashim Othman said the price increase followed a hike in world fuel prices. (NST)

The My Rapid Transit project is on track to be delivered on time by July 2017,  Mass Rapid Transit Corporation  (MRT Corp) CEO Datuk Azhar Abdul Hamid said yesterday. He said MRT Corp had spent slightly over RM1bn so far while the total value of work packages awarded stood at about RM16.5bn as at end-Aug. Over 17 work packages worth RM7.6 billion have been awarded to Bumiputera companies up to end-July and this works out to 47% of the packages disbursed so far, which was higher than the 43% target. (BT)

Malaysia’s  sovereign credit rating may be cut if the government does not deliver promised reforms to cut spending to reduce its fiscal deficits, Standard and Poor’s (S&P) has said in its latest report on the country, joining other global ratings agencies in warnings about the strains on the country’s credit profile. S&P said reforms the government should look at include the introduction of a goods and services tax (GST) and subsidy cuts.  However, it also said: “We may raise the sovereign credit ratings if stronger growth and the government’s effort to reduce spending result in lower-than-expected deficits, as indicated in the 10th Malaysia Plan. With lower deficits, a significant reduction in government debt is possible.” (Malaysian Insider)

The government will have to continue  spending on development  while at the same time keeping  national debt at a manageable level, said  Deputy Finance Minister Datuk Donald Lim Siang Chai. Lim said a significant development phase was taking place currently involving several billion ringgit worth of projects including the Mass Rapid Transit (MRT) line.  As at Dec 2011, the ratio of national debt to the GDP reached 51.8%. The government will work hard not to exceed the debt ceiling of 55% of GDP which was increased from 45% in July 2009. The country’s dependence on the oil and gas (O&G) sector will eventually reduce as the government has beefed up efforts to broaden its revenue base. The O&G sector supplies about 35% of government revenue (vs. as high as 50% in 1990s), followed by the commodity sector (palm oil and rubber), manufacturing, retail and tourism, he said.  On the  Goods and Services Tax (GST) Bill, he said the second reading will be tabled in Parliament as soon as feedback from the business community is received. (Bernama, Financial Daily)

The upcoming Budget 2013 is expected to reflect a significant change in the percentage structure of both personal and corporate income tax. Malaysian Association of Tax Accountants (Mata) president Abd Aziz Abu Bakar said yesterday although the tax reduction cannot be done drastically, he was confident the new budget will not disappoint the people and the business community. (The Sun)

US: Dow, S&P hit best levels since 2007
US stocks surged to new multi-year highs, helped by positive economic data and the ECB’s new plan to help ailing eurozone countries in the bond market. The S&P 500 and the Dow both registered their best closing levels since December 2007, holding onto strong gains achieved as soon as the markets opened. Banks led the march, with Bank of America putting on 5% and JPMorgan Chase gaining 4.3%. Key tech stocks also registered strong gains, with Microsoft rising 3%, Google adding 3%, and Cisco surging 4.4%. The boost came ahead of the release of Friday’s jobs numbers and set a positive background for President Barack Obama's Thursday night address at the Democratic Party's convention, which kicked off the final stretch of the presidential race. (The EconomicTimes)

The  US information revenue  gauge,  focusing on information and technology-related service industries, rose 0.8% qoq in 2Q12 from a revised 0.8% in 1Q12, said the Census Bureau. (Bloomberg)

The  US ISM non-manufacturing index  rose to 53.7 in Aug, the best monthly rate of general growth since May, from 52.6 in Jul. The reading exceeds consensus of 53.0. (Bloomberg)

The  US Federal Reserve said its holdings of  US securities kept for overseas central banks rose US$6.26bn in the week ended 5 Sep to stand at US$3.574tr. (Reuters)

The US Challenger Job-Cut report revealed that announced layoffs stood at 32,239 in Aug (36,855 in Jul), the second lowest of the recovery. (Bloomberg)

US ADP private payroll employment rose to 201,000 in Aug from a revised 173,000 in Jul. Economists expected a level of 149,000. (Bloomberg)

US jobless claims fell 12,000 in the 1 Sep week to 365,000 (a revised 377,000 in the earlier week), the lowest level in 4 weeks and the biggest quantum of decline in 6 weeks. Economists were expecting a reading of 370,000. (Bloomberg)

The  European Central Bank (ECB) introduced an  unlimited bond-buying program that will provide "a fully effective backstop" against market volatility.  The ECB said it would buy bonds with a residual maturity of one to three years. The ECB won't claim the status of a senior creditor if the bonds it buys subsequently have to be restructured.  It will continue to offset its purchases in full by taking an equal amount of money out of circulation, and will only continue its purchases as long as the country in question is deemed to be complying with the conditions it has agreed with the euro zone.  The new program, called "Outright Monetary Transactions", replaces the existing Securities Markets Program under which the central bank had bought some EUR209bn (US$263bn) in government bonds. The ECB will also conditionally reverse a recent tightening of its rules on collateral for its credit, saying it would again accept all bonds issued or guaranteed by euro-zone governments. This ruling will be subject to the terms of its European Union program. (Reuters, AWSJ)

Eurozone GDP fell by 0.2% qoq in 2Q12 following zero growth in the previous quarter. The yoy drop was revised to 0.5% from a previously reported 0.4%. The ECB cut its growth forecast for 2012 to a narrow range around -0.4%, and its forecast for 2013 to between -0.4% and +1.4%. (AWSJ)

The eurozone crisis poses the greatest risk to the global economy, the OECD said, and called for further action including government bond purchases being contemplated by the ECB. It also  forecast 2.3% growth this year for the US, down marginally from an estimate of 2.4% in May. (CNA, Reuters)

China's GDP growth for 2011 has been  revised upward by 0.1% pt to 9.3%. (Xinhua)

Chinese banks' rapid expansion of their assets in the first half of the year amid the current economic gloom might cause  loan repayment problems and undermine their solvency, Fitch Ratings said. (Global Times)

China  approved plans to build 2,018 kilometers (1,254 miles) of  roads, its second major construction project announced this week. The National Development & Reform Commission  also  cleared plans for nine sewage treatment, two waterway and five port and warehouse projects, without disclosing the required investments. (Bloomberg)

The  Bank of Japan needs to monitor more carefully negative effects of a strong yen on the economy amid global uncertainty, Governor Masaaki Shirakawa said. (Bloomberg)

South Korea’s debt rating was upgraded by Fitch Ratings to AA-, the same as Saudi Arabia and one level higher than Japan and China, 10 days after a similar move by Moody’s Investors Service. (Bloomberg)

The Bank of England has kept interest rates at 0.5% and held off from more stimulus measures. It decided not to increase its programme of quantitative easing (QE), having lifted it by £50bn in Jul to £375bn. (BBC)

Australia's jobless rate saw a surprise fall to 5.1% in Aug (5.2% in Jul; 5.3% expected by analysts), but the overall picture was not so bright, with 8,800 jobs shed and a drop in the participation rate and hours worked. (AFP)

India  is likely to overshoot its target for this fiscal year's  budget deficit, a senior finance ministry official said. The final deficit may remain close to the target of 5.1% of GDP in the year through Mar because of a number of steps the government is working on to improve its financial health. (WSJ)

Moody's Investors Service forecast  debt issuance in Asia would likely remain slow for the rest of the year if uncertainty in the euro area continues after its Asian Liquidity Stress Index (LSI) deteriorated in Aug. (StarBiz)

Danareksa’s consumer confidence index for Indonesia climbed to 92.3 in Aug from 91.4 in Jul. (Bloomberg)

The  World Economic Forum in its  Global Competitiveness Index ranked Indonesia 50th of 144 nations in its 2012-13 report, down four places from the previous year’s position.  China’s ranking dropped from the world's 26th in 2011 to 29th this year, its first decline  since 2005. (Jakarta Globe, Xinhua)

Myanmar President Thein Sein is moving to counter lawmakers who inserted protectionist elements in a foreign investment bill that may impede overseas companies just as the US and European Union ease sanctions. (Bloomberg)

Energy-price restructuring will be implemented next year to reflect the actual cost, but subsidies will remain for low-income consumers, says  Thai Energy Minister Arak Chonlatanon. (Bangkok Post)

The  Energy Regulatory Commission (ERC) approved an increase of 18 satang per kilowatt-hour in the cost of electricity during the Sep-Dec round, with a promise of further hikes in the next three periods to reduce subsidies by the Electricity Generating Authority of Thailand. (The Nation)