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KUCHING, May 13: Bank Negara Malaysia’s (BNM) decision to increase the overnight policy rate (OPR) by a 25 basis points to two per cent is not a wise move and will negatively impact the country’s rate of economic recovery.
Highlighting this, Democratic Action Party (DAP) Sarawak chairman Chong Chieng Jen emphasised that increasing the OPR at this early stage of the economic reopening will only slow down the economy, increase costs of business and put financial pressure on debt repayments for the people.
“In layman’s terms, most households in Malaysia have bank loans and thus the increase in OPR means that all these families will have to pay more in their monthly installments to the banks.
“It will directly impact all borrowers of bank loans, housing loans, business loans, hire purchase agreements and credit card loans.
“For a housing loan of RM200,000, an increase of 25 basis point will entail an increase of RM500 per annum interest. This increase in OPR will hit almost all households,” he said in a statement today.
Noting the rationale to increase the interest rate is to stabilise prices and control inflation, Chong, however, viewed that while the intention may be noble, the increase in interest rates at this time will likely not achieve the purpose of price stabilisation as the main reason for our current inflation is due to supply-push factor, not so much as demand-pull factor.
In the last one year, he pointed out the prices of raw materials have sky-rocketed, including freight charges, fertilisers, animal feeds and building materials, which has led to the overall price increases in all goods, especially food items.
The problem, he continued, was made worse because of a weak ringgit and against this inflationary economic background, the government implemented the new minimum wage rate from RM1,200 to RM1,500.
“With such a huge and sudden increase in the wages, it will add on to costs of business while at the same time increase the purchasing power of general consumers. Both have an inflationary effect on the price of goods,” he said.
Referring to BNM’s latest report, he said that Malaysia’s household debt to Gross Domestic Product (GDP) ratio as at December 2021 was 89 per cent.
“This is extremely high when compared to other neighbouring countries in the region. As at December 2021, Singapore’s household debt to GDP ratio was 69.7 per cent, Indonesia’s was 17.2 per cent and Philippine’s’ was 9.9 per cent.
“Therefore, the BNM’s 25 basis point increase in OPR will likely not have its impact on price stabilisation. On the contrary, it will slow down our economy and recovery,” he stressed. — DayakDaily