Cheap money benefits some, more than others

Local policymakers will need to ensure that the gains to narrow income distributions are not erased by the virus


THE Covid-19 pandemic’s negative impact on the real economy is growing by the day and has already taken a big toll on Malaysia’s capital market.

The impact on wealth has been substantial as hard data already suggests. The country’s equity market has lost some RM270 billion in value year-to-date, according to Bursa Malaysia data.

The loss was as much as RM466 billion as at March 19, a day after the Movement Control Order (MCO) came into force and the day the benchmark FTSE Bursa Malaysia KLCI hit a decade low of 1,207 points.

The rolling out of fiscal and monetary stimulus measures have helped markets recover some of the lost value, and more gains could be on the cards as institutions, like the International Monetary Fund, have forecast Malaysia’s economy to grow at 9% in 2021 after contracting by as much as 1.7% this year.

Trillions of dollars are being pumped into economies worldwide for the same reason as the era of cheap money returns after the 2008 credit crisis.

While the fiscal and monetary measures announced are meant to safeguard jobs and economic activities, the real gainers disproportionately could be the wealthier portion of society, as was the case after the 2008 crisis, as they hold most of the assets in the economy.

The cheap money era post-2008 helped fuel a rally in the financial and higher property markets, more often than not at the expense of wage earners.

Local policymakers will need to ensure that the gains to narrow income distributions in the country over the years are not erased by the virus and the ocean of cash in the system, as the jobs most at risk at present are the hard-labour-daily- wage-B40 types of positions in the economy due to the MCO.

As it is, economists are forecasting Bank Negara Malaysia will cut its Overnight Policy Rate by another 25-50 basis points as early as next month, thus the capital markets, especially the equity market, look set to recover further losses.

The move could nullify recent news suggesting property prices could fall as much as 20% due to the weaker economy, as excess to cheaper money could in fact keep the bubble well supported if the banks are given a free hand to lend.

  • Bhupinder Singh is the corporate desk editor at The Malaysian Reserve.