Bank Negara Malaysia raised its overnight policy rate (OPR) by 25 basis points to 3% on 3 May from 2.75% previously. The ceiling and floor rates of the corridor of OPR is now 3.25% and 2.75% respectively.
With Covid-19 over, there is less funds used for a stimulus or accommodative stance. Further, the economy has strengthened and a too accommodative policy will leave inflation elevated and exchange rate depressed.
Source:
https://en.wikipedia.org
The central bank had paused its rate hike cycle at its January and March policy meeting but raised 100 bps or 1% between May and November 2022, primarily due to a surge in inflation. Headline inflation and core inflation has moderated in 2023, averaging between 2.8% - 3.8%. However, core inflation may remain elevated with firm demand conditions. Price control and subsidies assist in ameliorating any upward pressure.
China’s rebound provides hope for better growth for the region. But geo-political tensions, market risks and higher rates by other central banks may dampen GDP growth.
The majority of economists had viewed a pause of the OPR increase. The former Finance Minister, Lim Guan Eng had urged BNM not to raise rates. His reasoning was that MSMEs will be impacted by rising costs and a squeeze on profit margins. Any business that cannot navigate a rate of 3% - 5% should not be in business.
Meanwhile, savers will welcome the move as well as importers of food items and other finished goods. This (OPR increase) will suggest USD to RM rate to narrow and provide a reasonable exchange rate for travel, education and trade. Hopefully, BNM stays the course and uses its wisdom to monitor inflation and accommodate growth.
Reference:
BNM raises OPR to 3% in surprise move, FMT Business, 3 May 2023
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