Interest rate hike to 2.25 pct too quick, could affect domestic economy, businesses, says Sim

Sim Kiang Chiok

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KUCHING, July 7: The timing of Bank Negara Malaysia’s (BNM) increase of the Overnight Policy Rate (OPR) by 25 basis points to 2.25 per cent is too quick and could cause a chain reaction which affects the domestic economy and businesses in Sarawak which is still recovering from the Covid-19 pandemic.

Even though the current hike may still be manageable for most borrowers, Sarawak Housing and Real Estate Developers’ Association (Sheda) Kuching branch chairman Dato Sim Kiang Chiok warned that any further increases could dampen domestic economy growth prospects.

“In my personal opinion, the latest hike, which is the second time this year (from previously 1.75 per cent to 2 per cent), could slow down the demand for goods and ease inflation.

“The government has also implemented the increase in minimum wage from RM1,200 to RM1,500 on June 1 which big companies must comply with while smaller companies with less than five staff are expected to start next year. This will have some effect that causes inflation to rise.

“The hike in interest rates is good for savers, but for those who are in business their cost of capital will increase and may be reflected in their selling price of goods,” he said in a statement today.

Sim emphasised that Sarawak and Malaysia in general have not been spared from the economic pressures which have hammered the global economy due to a mix of factors including disruptions to supply chains, the Ukraine-Russian war which increased oil prices and China’s Covid-19 lockdowns that have caused hikes in prices of goods, all of which have affected people’s cost of living.

But on the bright side, he pointed out, Malaysia’s inflation is still manageable at 2 to 3 per cent compared to other major countries facing inflation rates of 6 to 9 per cent.

“This is because our governments are giving subsidies to our oil and gas as well as essential food items. We have also imposed price controls on essential items so that profiteering will be kept to the minimum.

“The increase in interest rate will help our ringgit to stabilise against other major currencies so that our imported inflation can be reduced by strengthening of the present weak ringgit against major trading countries,” he added.

As for the property sector, Sim opined that demand for houses will still be strong as the new interest rate is still comparatively low compared to pre-Covid-19 which was at about 3.5 per cent.

“The construction cost of houses is rising due to increase in material prices and labour shortage. As such, the new launch price is expected to be increased.

“Like I have mentioned before, it is a good time to buy completed or near completion houses as the costs are already set, or secondary market houses. The banks are still supportive in giving end financing for house purchase for those with stable income and employment,” he added. — DayakDaily