Bank Negara Malaysia set to increase interest rates

By ZAIDI ISHAM ISMAIL
editor@dagangnews.com

KUALA LUMPUR Nov 2 – Bank Negara Malaysia is expected to increase interest rates in the next 6 months to cool down the economy.

Industry observers said the rakyat and businesses went into overdrive this month as soon as the government relaxed the lockdown.

This was coupled with the fact that more than 90 per cent of the adult population have been fully vaccinated.

After being cooped up for more than a year, most Malaysians made a beeline for their preferred holiday destinations.

As a result, all economic sectors had a booming time which leading to a robust economy.

Asia Institute of Management, Science and Technology Vice Chancellor Datuk Dr John Antony Xavier said, in 6 months, the benchmark interest rate will go up to prevent the overheating of the economy. 

"We are now at the endemic phase, the economy is fast recovering but it faces supply-chain disruptions.

There is a need for the right skills to meet the expanding demand from the industries.  

"The pent-up consumption demand is also being released quickly causing inflation to rise," Xavier told DagangNews.com.

He added supply-chain disruptions have reduced supply while the demand for goods and services are increasing.

This is also because of the government’s aggressive fiscal stance.

"So, if the government does not increase the interest rate in the future, then inflation will shoot up as demand outstrips supply.  So, to contain inflation interest rate has to go up," said Xavier.

Xavier added, if Malaysia does not control its inflation, then the ringgit will also depreciate.

Bank Negara announced last week that liquidity in the banking system has dipped to RM39.2 billion from RM42.6 billion.

What this means is that the rakyat is spending less and stashing more of their cash in banks.

Malaysia's interest rates are called the overnight policy rate or OPR and is now at 1.75 percent.

A higher interest rate will keep the country's foreign exchange rate stable.

The OPR is the base lending rate set by the central bank on the local banks.

The local banks will then use the OPR as benchmark to set its own interest rates such as on car and housing loans.

A high interest rates usually denotes a rising economy which needs to be tapered down while low interest rates indicate a slowing economy.

During Budget 2022, Finance Minister Tengku Datuk Seri Zafrul Aziz forecasted that the Malaysian economy is projected to grow between 4.5% and 5.5% this year. – DagangNews.com