KUALA LUMPUR – DAP urged Bank Negara Malaysia (BNM) not to further raise its overnight policy rate (OPR) for the third consecutive time amid rumours of a hike this week.
DAP chairman and former finance minister Lim Guan Eng said the purported reasoning for the move, which is to stem soaring prices and inflation, does not hold water.
This is going by the consumer price index’s inflation rate of 4.4% in July, compared to 3.4% the previous month, despite the central bank’s efforts in increasing the OPR, he pointed out.
“Raising interest rates has no effect on rising prices principally because this is not caused by excessive demand, so hiking the OPR would not reduce demand,” said Lim, presently the MP for Bagan, in a statement today.
“Global inflation is cost-push, caused by supply chain disruptions as a result of sanctions imposed following the Ukraine war and the Covid-19 lockdowns in China.”
Lim added that an OPR hike would run contrary to the claim by the government’s special cabinet committee for “Jihad on Inflation” that the situation is slowly coming under control.
He was commenting on the projection made by Moody’s Analytics that BNM is expected to raise its OPR rate by 25 basis points to 2.5% this week, supposedly to help alleviate inflation in the country.
This follows similar hikes by 25 basis points in May and July – moves that were met with concern from a general population already under pressure from the rising prices of goods.
Lim said the reasoning that an OPR hike would positively impact the value of the ringgit – following the recent rapid depreciation of the currency – is also not tenable.
“The ringgit is approaching a 24-year low of RM4.50 to the US dollar, dipped to a historic low by breaching RM3.25 to the Singapore dollar, while the Indonesian rupiah has strengthened by 3% this year against the ringgit.
“If the purpose of the expected 25 basis points hike is to shore up the value of the ringgit, this is an exercise in futility as BNM can never compete against the more aggressive interest rate hikes by the US Federal Reserve.”
Lim argued that any hike in the OPR would only adversely affect the people’s socioeconomic well-being, the domestic investment climate and the country’s post-pandemic economic growth, rather than curb inflation and strengthen the ringgit as intended.
“Increasing interest rates would unnecessarily add on to the costs of individual loans on houses and vehicles, business costs, cash flows of traders and cost of funds of investors,” he said. – The Vibes, September 6, 2022
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