Malaysia welcomes investments of US$14.70 billion (RM63.02 billion) proposed so far by US technology giants, including Google, Microsoft, Enovix Corporation, Amazon Web Services, Abbott Laboratories, and Boeing.

The matter was conveyed by Prime Minister Datuk Seri Anwar Ibrahim during his bilateral meeting with US Secretary of State Antony Blinken on the sidelines of the 44th and 45th Asean Summits and Related Summits here on Thursday.

Anwar said Malaysia also looks forward to strengthening cooperation with the US in emerging industries.

On another note, the prime minister welcomed the US delegation to the next Senior Officials Dialogue in Putrajaya at the end of October, as the two countries celebrate the 10th anniversary of the Malaysia-US Comprehensive Partnership.

“Malaysia appreciates the US’ leading role in United Nations Security Council (UNSC) Resolution 2735, and urges the US to use its influence to swiftly implement the resolution,” he said.

Resolution 2728, which was passed on June 10, called for an immediate ceasefire of all hostilities in Gaza.

Meanwhile, the US State Department, in a statement on the meeting, said Blinken had emphasised US support for Malaysia’s Asean chairmanship next year and discussed opportunities for increasing cooperation to boost regional stability in support of a free, open, secure, resilient, and prosperous Indo-Pacific region.

“Secretary Blinken and Prime Minister [Anwar] Ibrahim underscored the importance of the US-Malaysia Comprehensive Partnership at its 10th anniversary and a commitment to strengthening people-to-people, economic, and security ties,” said the statement posted on the department's website.

According to the statement, Blinken and Anwar further emphasised the critical need for a ceasefire, the release of all hostages, and an urgent influx of humanitarian assistance and launch of reconstruction efforts in Gaza.

Anwar and Blinken later attended a gala dinner hosted by the Asean chair, Laos’ Prime Minister Sonexay Siphandone, and his wife Vandara Siphandone in conjunction with the summits.

Source: Theedgemarkets

Minister in the Prime Minister's Department (Federal Territories) Dr Zaliha Mustafa held productive discussions on Thursday in Shenzhen with two major Chinese technology firms, Baidu and Tencent, to explore strategic collaborations aimed at advancing the Federal Territories.

Zaliha said her discussions with Baidu revolved around developing artificial intelligence (AI) talent through the company’s corporate social responsibility (CSR) initiatives.

“If effectively implemented, this could lead to the development of more local AI experts, empowering our youth and enhancing the nation’s competitiveness in technology.

“Besides this, we also explored using AI technology to improve traffic management and public transport, contributing to a better quality of life in urban areas,” she said in a Facebook post on Thursday.

Zaliha said that in the evening meeting, Tencent introduced the SuperApps concept — a platform integrating various government services to streamline public access to services, thereby reducing bureaucracy and enhancing service quality.

She said Tencent had shared their CSR programme, which supports car-free days, encouraging communities to convert their participation into charitable contributions.

This initiative would align with Kuala Lumpur's Car Free Morning programme, promoting a healthier lifestyle and a greener city, she said.

“To ensure greater impact, I will request the Federal Territories Department to collaborate with the three local authorities — Kuala Lumpur City Hall, Putrajaya Corporation and Labuan Corporation — to review these concepts and develop suitable implementations,” she added.

“With these efforts, we aim to accelerate the achievement of the CHASE City vision, focusing on sustainability, efficiency and well-being for all residents of the Federal Territories,” she concluded.

Source: Theedgemarkets

The Bank of Korea (BOK) cut its benchmark interest rate after local property markets showed signs of cooling and inflationary pressure eased sharply, allowing authorities to finally shift their focus to supporting economic activity with a cautious policy pivot.

The central bank lowered its seven-day repurchase rate by a quarter-percentage-point to 3.25% in a decision predicted by 20 of 22 economists surveyed by Bloomberg. 

Five members of the board see the rate staying there over the next three months, according to governor Changyong Rhee, a view that largely wipes out the likelihood of a follow-up rate cut next month and pours cold water on expectations for a move in January. One member opposed Friday’s rate cut decision.

Rhee, speaking at a post-decision briefing, acknowledged the decision was essentially a “hawkish cut”. Markets also reflected that view, with the won strengthening a tad against the dollar. 

With its policy pivot the BOK joins a growing wave of central banks changing course to embark on easing cycles in a bid to revive economic momentum now that inflationary pressure has cooled. The Federal Reserve last month cut its key rate by a half-percentage point as ensuring a soft landing for the economy took precedence over its inflation battle.

“The rate cut not only responds to the consumption that’s been lackluster, but also shows the BOK can afford to loosen a bit given the pressure pushing the inflation rate back above 2% appears limited,” said Ahn Yea-ha, analyst at Kiwoom Securities Co. Ahn still forecasts a gradual easing with the BOK holding the rate in November.

Until Friday, the BOK had held the rate at a restrictive 3.5% for more than a year and a half. Policymakers extended the holding pattern in recent months on concerns that any early signals of a pivot might further fuel a rebound in the housing market and threaten financial stability.

The bank cited a “clear trend of stabilisation” in inflation, a slowing in the growth of household debt and an easing of currency risks as factors behind its decision, according to a statement. While the BOK said it was slightly moderating its restrictive stance it removed a reference to keeping policy restrictive in its concluding remarks. The bank said it would judge the pace of further rate cuts by assessing prices, economic growth and financial stability. 

The rate cut reflects concerns over stagnant private spending and credit risks related to the construction industry. With most borrowers on floating rates, interest expenses have exerted a drag on consumption, prompting some lawmakers to call for the central bank to cut rates.

“Given the prevailing negative sentiment and the Fed’s sizeable cut, the market expects faster rate cuts by the BOK to support economic growth and momentum,” Standard Chartered Bank economists Chong Hoon Park and Nicholas Chia said in a note before the decision. “Still, we think negative sentiment on Korea’s economy is overblown, and the BOK is likely to stay cautious on cutting the base rate aggressively as it weighs the risks to financial stability.”

The government has sought to rein in housing markets with a pledge to increase home supplies and by rolling out stronger regulations on mortgage loans, moves that may have reassured the central bank that the market would cool. One BOK board member cited those measures in the lead-up to Friday’s decision and Rhee also hailed the efforts at this briefing.

“Monetary easing on a measured pace could also help engineer a soft landing of property markets in a close coordination with financial regulators,” Goldman Sachs analysts Goohoon Kwon and Andrew Tilton said in a note. With moderating export growth and other potential headwinds to the economy, the BOK will likely conduct a quarter-point cut each quarter until the rate reaches 2.5% by the third quarter of next year, they projected.

Source: Theedgemarkets

Now that central banks are cutting rates, the question of where they will stop comes into focus. Real rates have trended down for decades, but a very long-term view supports our thesis that rates will average higher in future than they did pre-pandemic.

Most peer central banks are already cutting rates and some are front loading the cuts. The Fed and the RBNZ have seemingly declared 50 to be the new 25, though it is not clear that the FOMC will continue at that pace. The ECB may also want to pick up the pace to offset fiscal consolidation, as Westpac economics colleague Illiana Jain points out in her piece in our latest Market Outlook report released this week.

Steep hiking phases followed by equally steep cutting phases may well be a general pattern when an inflation surge is largely driven by supply shocks that unwind of their own accord. Unlike the more organic sources of strong demand that central banks usually contend with, the demand component of the current inflation shock has also been partly self-correcting, driven as it was by pandemic-era stimulus. It should be no surprise then that the economies with some of the sharpest rate cycles – the United States and New Zealand – had ongoing fiscal stimulus after the pandemic.

While the need to reduce the restrictiveness of policy in these economies is clear, it is less obvious where policy might need to land to no longer be restrictive. The so-called neutral rate is uncertain. And as the FOMC ‘dot plot’ estimates for the long-run fed funds rate show, policy makers are even less sure about its level than in the past. While their views have diverged, all FOMC members are agreed that it is probably higher than was believed before the pandemic. This lines up with our long-standing house view that the global structure of interest rates is likely to be higher on average than it was between the GFC and the pandemic. The era of negative yields is over.

The rate that neither stimulates nor weighs on inflation at any point is also the rate that balances desired saving and investment. It will depend on whatever else is going on, including the drag or stimulus from fiscal policy. It is because of these other things that we expect a higher average rate structure. European governments need to consolidate, but as Iliana points out, by less and in a less abrupt manner than in the early 2010s. Western governments more generally are facing greater demands to spend on defence, energy transition and to meet the needs of an ageing population. The private sector, too, has more need to invest now, on energy transition and the energy demands of AI. It also has a bit more scope to do so given that Western banking systems are less constrained by the need to build up capital to meet the requirements of the Basel 3 rules. Asian economies remain an important source of saving, but not more than they were in the first two decades of the century. They might even be less of a saving source, depending on how large the stimulus is in China.

All of this is a guide to what central banks need to do to achieve their desired policy stance in the moment. It says less about where the rate structure is likely to gravitate to in the long run, when all the current shocks have played out. The answer to that question is also often labelled the ‘neutral rate’, a little confusingly. (Some researchers attach an extra star to their notation distinguish between these concepts.) This longer-term version is less of a guide to central bank decision-making now, and more of an anchor for pricing very long-term debt securities.

A plague on all your 20th century trend estimates

This long-term anchor concept still boils down to the rate that balances global saving and investment on average. But now we must consider the deeper and more structural drivers of those forces, and whether there are structural trends. A large body of research notes the downward trend in both short-term and long-term real interest rates. So far, though, there has been no consensus on the reasons for this.

Some recent research by Kenneth Rogoff, Barbara Rossi and Paul Schmelzing might provide some insights. They have compiled data on real long-term bond yields going all the way back to the year 1311, more than 700 years. An achievement in itself, their dataset shows that there has indeed been a slight downward trend over this longer period. Crucially, though, the period between the GFC and the pandemic was in fact a downward deviation from that trend. The authors therefore expect some reversion to trend in coming years. This contrasts with papers using shorter data sets, where the downward trend is less precisely estimated.

It is important not to take this purely empirical observation as gospel. We do not yet know why there is a downward trend, or what might be the cause of the recent downward deviation. There are, however, some reasonable hypotheses. Recall that these are long-term real bond yields not the short-term rates used by central bankers to set policy. The market and policy apparatus the shorter rate applied to came in many centuries later than long-term sovereign bonds. It may be that the trend comes from a trend in the term premium or risk premium, rather than from the neutral short-term rate as we think of it now. For example, it could be that as experience with long-term debt markets increased, and governments became better at keeping their financial promises, investors among Europe’s Early Modern elites became more trusting over time and demanded a smaller term/risk premium over the (unobserved) ‘true’ risk-free rate.

Some other suggestive possibilities can be inferred from the fact that there was a break upwards in the trend following the Black Death in the 1340s, when one-third to a half of the population of Europe perished. If the underlying trend in interest rates reflects people’s willingness to wait until tomorrow, their need to be compensated for waiting will reflect their beliefs about how likely it is that they will even survive until tomorrow. Events like the Black Death surely shifted that subjective belief.

More broadly, rising longevity – or more precisely, greater certainty about your adult longevity – could be one of the reasons why people have seemingly become more patient and willing to accept less compensation for waiting, that is, a lower long-term interest rate. (The authors cite other research suggesting that elite males – the segment of the population who would have cared about yields on sovereign debt back then – were less likely to die in battle from the 1400s. That would have helped start the downtrend after the increase following the Black Death.) That is a reason to expect a slow downward trend, and to not assume that a lurch down after the GFC was permanent. There is a common thread here with other literature, including work from the Bank of Canada that focused on the need to save for longer (and more certain) retirements.

The academic debate remains unresolved. For anyone thinking about pricing bonds or planning fiscal policy, though, some of the latest research suggests it would be foolhardy to assume that the low-rates world of the GFC-to-pandemic period will continue.