Economists Believe BNM Won’t Raise OPR
It appears that Bank Negara Malaysia (BNM) is currently under no pressure to follow the lead of the Indonesian central bank in raising the overnight policy rate (OPR).
According to reporting by Free Malaysia Today (FMT), economist Geoffrey Williams said that there is currently no need for any pre-emptive move to raise interest rates to keep inflation in check and stabilise the ringgit.
“There is no pressure on BNM to raise interest rates as monetary policy in Malaysia has been well handled. Headline inflation is in line with historical averages, the economy is forecast to grow, and the financial system is stable,” said Williams.
He would also go on to argue that the OPR is not used as a tool to strengthen the ringgit. Rather, it is BNM’s successful use of market management strategies that helps to stabilise the local currency.
This is a reference to BNM and the government’s recent move to encourage government-linked companies, government-linked investment companies (GLICs), and other companies to repatriate their foreign earnings to help relieve some of the pressure that is being placed on the ringgit.
It was also noted that BNM has also intervened in the forex market, which allowed the ringgit to stabilise and strengthen. As such, it is not necessary to use interest rates as might be the case in other countries.
“The overriding concern will be to keep a steady hand on the tiller and guide the economy through the rest of the year given global headwinds outside of the control of Malaysian policymakers,” said Williams.
Questions regarding the OPR were raised after Indonesia’s central bank made the surprising move of raising its benchmark interest rate by 25 basis points to 6.25% on April 24 to bolster the weak rupiah. Bank Indonesia governor Perry Warjiyo said the rate hike was “a pre-emptive and forward-looking step” to ensure inflation remains within its target.
According to FMT, Malaysian Institute of Economic Research senior research fellow Shankaran Nambiar said there is no reason for BNM to be concerned about inflationary pressures at the moment as “the inflation rate has been moderate”.
Like Williams, Nambiar also believes that there is no real pressure to raise the OPR. He also does not think BNM would want to use the OPR to “handle the ringgit”, at this point in time.
Bait Al-Amanah research director Benedict Weerasena agrees there is no pressure on BNM to raise or lower the OPR, citing three main reasons for his assessment.
- The prevailing inflation trajectory does not present a risk to BNM’s targeted inflation rate. Malaysia’s headline inflation and core inflation remained benign at 1.8% and 1.7% respectively in March 2024.
- The ringgit is likely to strengthen in the second half of 2024, buoyed by structural reforms and positive growth prospects in addition to BNM’s various short-term remedial measures.
- Malaysia’s economic growth is expected to continue improving in 2024, propelled by export recovery and resilient domestic demand supported by sustained employment and wage growth.
