BANK Negara Malaysia (BNM) has been urged against hiking up its overnight policy rate (OPR) by 25 basis points from 2.25% to 2.5%, which is expected later this week.
Yesterday (Sept 5), financial services company Moody’s Analytics said the increase – BNM’s third consecutive rate hike if true – was aimed at helping ease the country’s inflation amid the rapidly declining ringgit.
However, former finance minister Lim Guan Eng said BNM’s previous efforts in increasing the OPR appeared to have “no effect” on inflation, after the Consumer Price Index (CPI) rose by 4.4% in July compared to 3.4% in June 2022.
In a statement today, Lim said raising interest rates has no effect on rising prices (in principle) because it is not caused by excessive demand or demand-pull inflation.
“So, hiking the OPR would not reduce demand,” the DAP chairman noted.
The Bagan MP also pointed out global inflation is a cost-push, caused by supply chain disruptions as a result of sanctions imposed following the Ukraine-Russia war and the total lockdowns in China to combat COVID-19.
“Neither has increasing the OPR made any positive impact on supporting our ringgit in the currency market,” he added.
“Slap in the face”
Hiking up the OPR would also be a “slap in the face” to Special Jihad Taskforce Against Inflation chairman Tan Sri Annuar Musa, Lim said, as Annuar claimed that inflation and soaring food prices are getting slowly under control.
“If the purpose of the expected 25 basis points hike is to shore up the value of the ringgit against the US dollar, this is an exercise in futility as BNM can never compete against the more aggressive interest rate hikes by the US Federal Reserve,” Lim added further.
He noted that 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.
“Instead of curbing inflation and the decline in the value of the ringgit, hiking up the OPR would adversely affect the people’s socio-economic wellbeing, the domestic investment climate and the country’s post-pandemic economic growth, which is facing pressure from rising prices,” Lim said.
Increasing interest rates would also 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 added.
“BNM and the Government should be helping businesses not harming businesses, especially small and medium enterprises (SMEs), who are struggling to survive and revive their business in the difficult post-COVID-19 economic environment.”
BNM’s September monetary policy committee is scheduled to meet on Sept 7 and 8, according to Free Malaysia Today (FMT).
If the OPR is hiked up, it would be the first time since 2010 that BNM raised rates three times in a row; BNM raised rates by a modest 50 basis points since May to 2.25%.
Reuters, meanwhile, forecasted another 25 basis point hike in November. – Sept 6, 2022
