FORMER finance minister Lim Guan Eng expressed surprise and dismay at the latest 25 basis point hike in the overnight policy rate (OPR) to 3%.
The DAP chairperson noted that one of the key rationales given by those defending Bank Negara Malaysia’s (BNM) surprise increase collapsed when the ringgit depreciated against the US dollar.
“The OPR hike of 0.25% was supposed to help boost the strength of the ringgit against the US dollar,” he said in a statement today.
However, Lim pointed out that the ringgit has depreciated in less than 10 days, from RM4.45 to the US dollar on the day of the OPR hike on May 3 to RM4.47 today.
“Clearly the value of the ringgit is not determined by sound economic fundamentals, solid economic performance, growth rates or OPR set by BNM but more a function of interest rate expectations of the US Federal Reserve.
“This is demonstrated during BNM’s two interest rate pauses this year, which did not jeopardise the value of the ringgit but instead appreciated to RM4.24 to the US dollar on Jan 28,” he added.
According to Lim, the ringgit might yet strengthen to January levels if the Federal Reserve’s interest rate hikes are paused, allowing the performance of key Malaysian economic fundamentals to come into play.
“The 3.4% inflation rate for March is a 34-month low, making the OPR hike so unexpected.”
Moreover, Lim further added that this sentiment is reflected by most economists, citing a Bloomberg poll of 19 economists that found that 16 expected the OPR to remain unchanged with only three predicting an OPR hike.
“A poll of 25 economists by Reuters found that 21 expected the OPR to be maintained with only four predicting an OPR hike,” he added.
Furthermore, BNM governor Tan Sri Nor Shamsiah Mohd Yunus today denied that the increase in the OPR has led to a rise in bankruptcies.
According to her, there are no figures to support such an allegation, adding that, on aggregate, households have continued to hold financial assets in excess of debt which enables them to manage higher borrowing costs.
“We acknowledge there are pockets of segments and sectors that need help due to their circumstances, and help remains available for those in need. With all these conditions, it is timely, necessary and warranted that monetary policy is recalibrated to make sure that we continue to be on a sustainable growth path.”
Nevertheless, Lim is of the opinion that the hike was still a “nasty surprise”.
“This nasty surprise of an OPR hike will be felt most by bank borrowers, especially individuals with a vehicle, home, and credit cards as well as small and medium enterprises bearing a heavier financial burden.
The Bagan MP noted that apart from borrowers, the economy may also suffer with a higher interest rate affecting economic growth already affected by global uncertainties of a US-led global recession.
He also viewed it as a warning signal of a subdued Malaysian manufacturing sector at the start of this year’s second quarter amid a challenging economic environment.
“The surprise OPR hike definitely does not help to boost business confidence.” — May 12, 2023
