Inflation still low, claims of looming OPR hike untrue: economists

KUALA LUMPUR – Claims by some quarters that Bank Negara Malaysia (BNM) is expected to once again raise the overnight policy rate (OPR) as early as July are not true as Malaysia’s inflation rate remains at 3.7%, financial experts have asserted. 

Putra Business School (PBS) economist, Assoc Prof Ahmed Razman Abdul Latiff, said that OPR increases are not just determined by the inflation rate but various other factors, particularly the trend of existing loan patterns as well as the cost of living – as seen in food and drink prices.

“I don’t see the OPR being increased in the near future,” he said, stressing that during its meeting in May BNM will assess the current situation and for the next month or two – taking into account the inflation rate, which remained at 3.7% in January and February.

“OPR increases depend on the inflation rate, and so far it has remained low. It is still too early for us to decide whether it will be increased or otherwise,” he told Getaran, The Vibes’ Bahasa Malaysia sister portal. 

Commenting further, he insisted that the OPR method is a mechanism under the debt-based economic system – an unsustainable policy even though the rate has recorded a decline. 

In this regard, Razman, who is also director of the master of business administration programme at PBS, said the government and public need to explore an economic system not reliant on debt and interest rates.

“For example, business loans can be made through public-equity funding that does not involve banks and interest rates, and if we look at car purchases, there is a payment method not involving borrowing.”

He added that for personal loans, one can use the Qardhul Hasan instrument practised in Islam. 

“These various methods show that there are (other) existing systems. If these are strengthened or promoted by the government, of course we will not be affected by the increase and decrease in interest rates,” he said. 

Razman also advised the public not to incur any new debt by ensuring they spend within their means, and to always increase their sources of income through boosting knowledge and skills. 

“We seem to be enslaved by the rise and fall of interest rates, even though it is an act of usury,” he said. 

Earlier, Berita Harian reported that some economic analysts expect BNM to once again increase the OPR by 25 percentage points as early as this July. 

According to the report, the expectation is based on the economic development forecast driven by strong domestic demand, following the recovery of employment and better income levels. This will also take into account the inflation rate, which is expected to remain high even if it begins to moderate this year, the report said.

However, the report was reprimanded by Communications and Digital Minister Fahmi Fadzil who described it as slander which could cause public confusion. 

Fahmi said he had no problems with the contents of the report, which was based on the views of an analyst. 

“But the Facebook post was very different as it created the impression that Bank Negara or the government had made a decision (on the OPR). This is not true and is not fair to Bank Negara or the government,” he said.

BNM in its annual report for 2022, its economic and monetary outlook for the same year, and its financial stability outlook for the second half of 2022, projected the national economy to grow by between 4.0% and 5.0% in 2023. It said this would be driven by domestic demand despite a challenging external environment, while the inflation rate will be around 2.8-3.8% .

Don’t take shortcuts, OPR only as last resort

Meanwhile, Universiti Keusahawanan Koperasi Malaysia economist, Assoc Prof Abu Sofian Yaacob, said an OPR increase would not just heighten the burden on borrowers, but would also fail to contribute to a decrease in inflation and commodity prices. 

He explained that every time the OPR is increased, loans and financing based on floating rates also rise, causing the amount of monthly payments to increase. 

He stressed that he does not agree with the notion behind increasing the OPR as it would burden borrowers. Repayments due will rise and people would be discouraged from taking new loans. 

“Many parties will be afraid to take loans. For example, people surely would not want to buy a house or will put aside the intention to buy a house after that, which would affect (housing developers),” he said. 

Therefore, he said, there is a need for the government to re-examine in detail the use of the method, expressing hope that there will be no further OPR increase until the end of this year. 

“The increase in OPR should be the last resort used by the government to control the increase in the price of inflationary goods. Don’t use it arbitrarily, such that when the prices of goods and inflation rise you want to increase the OPR. It can’t be like that. 

“The government needs to use other methods such as increasing production (and) controlling prices that are seen to be able to prevent the OPR from being increased. Don’t take easy paths or shortcuts anymore,” he said. 

At the same time, Abu Sofian suggested that the government, especially through BNM, identify the best method to control goods prices and cut inflation. 

“I hope the OPR increase is delayed until the end of this year. Let the economy grow by itself,” he said.

“So there is a need for the government to implement other methods, because goods are getting more expensive and at the same time there is no salary increment.” – The Vibes, April 1, 2023