KUALA LUMPUR – Bank Negara Malaysia (BNM) has been urged to refrain from raising the overnight policy rate (OPR) at its fourth Monetary Policy Committee (MPC) meeting this week as this will have huge implications on the people’s socioeconomic wellbeing and the country’s post-pandemic economic growth.
Economics professor Datuk Shazali Abu Mansor said maintaining the OPR at the current rate of 2% is important as the country is being battered by inflation due to rising prices.
“Raising interest rates at this time is not the right step to curb (this round of) inflation as it is not due to an increase in aggregate demand, but rather due to supply-chain disruptions.
“The situation in our country now is not due to people’s enthusiasm to spend, so it is not right to increase the interest rate.
“The cost of production will also increase (with a rise in interest rate). With the current difficult situation, the increase in the prices of goods will definitely burden the people and reduce their purchasing power,” he told Bernama today.
Shazali, who is also Deputy Vice-Chancellor for Research and Graduate Studies at i-CATS University College, said the increase in the OPR will also affect the interest rate on loans in the form of higher monthly installments.
As a result, the cash flow of traders and individuals, who have loans from financial institutions, will be affected, he said.
A rise in the OPR will also pose a risk to investment growth in the country, he said, adding:
“An increase in OPR will make it difficult for investors to make new investments as the cost of funds increases.”
With the current sluggish investment climate, he said the increase in the OPR does not help investors.
Moody’s Analytics economic research expects BNM to raise the OPR by 25 basis points to 2.25% at the forthcoming MPC.
BNM’s two-day MPC meeting begins today and its monetary policy stance will be announced tomorrow. – Bernama, July 5, 2022
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