KUALA LUMPUR, May 28 — Bank Negara Malaysia’s (BNM) recent overnight policy rate (OPR) hike — to bring it back to pre-Covid-19 pandemic levels — was not prematurely done,...
KUALA LUMPUR, May 28 — Bank Negara Malaysia’s recent overnight policy rate hike — to bring it back to pre-Covid-19 pandemic levels — was not prematurely done, but was instead a carefully considered move to pre-emptively bring down inflation in Malaysia instead of waiting until it is too late to take action, the BNM governor said today.
She noted that inflation in Malaysia has been lower recently with headline inflation at 3.6 per cent in 2023’s first quarter compared to 3.9 per cent in 2022’s fourth quarter largely due to lower RON97 petrol prices, but said core inflation — which is a proxy of demand-drive inflation — is still high with an average 3.9 per cent in 2023’s first quarter compared to the long-term average of 2.1 per cent.
“It will take much bigger and faster OPR increases to bring inflation down once it has taken root — as we can see in other countries,” she said in the lengthy commentary published by news portalFollowing the OPR hike, banks in Malaysia have also pushed up the interest rates charged on borrowers’ loans, while also giving higher interest rates for fixed deposits and savings to its customers.
“Many expected us to do it in the second half of the year but some noted that it was timely to do so in May to prevent inflation from becoming entrenched given the resilient economic growth. We are not out of the woods yet and need to be on guard,” she said. As for criticism that the OPR has allegedly not helped the Malaysian ringgit, Nor Shamsiah said it is the market that decides the ringgit’s value against other currencies and that the US dollar’s movement currently continues to be the major factor affecting the value of currencies including the ringgit.
Instead of short-term measures or monetary policy decisions , structural reforms will provide more lasting support for the ringgit, she said.
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