OPR increase within mart expectations, necessary to contain rising inflation

KUALA LUMPUR: Bank Negara Malaysia’s (BNM) decision to increase the overnight policy rate (OPR) by 25 basis points to 3.25 per cent was within market expectations, said Affin Hwang Investment Bank vice president/ head of Retail Research, Datuk Dr Nazri Khan Adam Khan.

He said the move was necessary move to contain rising inflationary pressures.

Nazri said the cost-push factors on the back of recovery in commodity prices, including the firmer crude oil, coupled with stronger ringgit versus US dollar and higher cost of living, had influenced the inflation rate to increase.

“The prudent measure by the central bank was made after taking into account the development of Malaysia and global economy,” he told Bernama.

He said the country has experienced negative interest rates for quite some time, so this adjustment would not give rise to problems for the country given its robust economic growth, strong fundamentals, healthy liquidity in the banking system and many more positive backdrop.

“It is a proactive policy. The adjustment is necessary to anchor the inflation from raising too high,” he said.

The last time BNM changed its key rate was in July 2016 when it made a 25 basis-point cut.

The real interest rate has been in the negative territory, which below the inflation, for 12 consecutive months, while the recovery became more entrenched.

Nazri said the change in OPR at the Monetary Policy Meeting yesterday would provide positive spillover effect on the capital market, especially the banking sector, as this could positively expand their margins and earnings.

He said the higher interest rate would not have any impact on loan growth in the banking industry as the economy has strengthened and investment flowing into the country. — Bernama