BANK Negara Malaysia’s (BNM) latest 25-basis-point increase in the overnight policy rate (OPR) to 2.75% could have just stumped the country’s economic recovery as small and medium businesses are finding it increasingly difficult to operate, industry captains said. 

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) small and medium enterprises (SMEs) committee chairman Koong Lin Loong said each time the OPR is raised, there is a significant impact on SMEs. 

The ACCCIM is the national level organisation of the Chinese chambers of commerce in Malaysia.

“The SMEs are still in the post-pandemic recovery phase. Businesses are now worried about their cash flow as borrowing will be expensive. 

“During the pandemic, businesses slowed down and even totally shuttered to comply with the movement control order in the past two years, which depleted their financial reserves. 

“Some companies are repaying their current outstanding loans out of their own pockets,” he said.

Koong said BNM is well aware of the situation the SMEs are facing as it has data that shows many companies restructuring their loan repayments. 

He said during the recovery process, companies need money for good cash flow. 

“They cannot use their profits to pay back the interest on their loans just yet, so the interest rate hike is a stumbling block to their recovery,” he said. 

To weather the financial crunch, Koong is suggesting that the SMEs create, if they can, a “rainy day” fund, which their companies can dip into for the next three or six months or even the next year so they do not have to go to banks to borrow money to ease their cash flow.

He said SMEs should reevaluate their business and focus on those services or products that generate the most business. With the money generated, it could help in easing the company’s cash flow problem.

Koong said there’s no point in offering goods and services that do not bring in the cash. 

“They will just create debt. So there is a need to reevaluate their business.” 

On businesses that have difficulty repaying their loans, Koong said they should talk to their respective banks immediately on a debt restructuring plan. 

“If they use all their money to continue repaying their loans, they would not have any for business expansion. 

“SMEs need to expand to increase sales.”

Koong said as it is, the market in Malaysia is not only shrinking with the entry of more players, but the costs of doing business is also very high. 

“SMEs need to explore new markets elsewhere.” 

BNM’s November 3 announcement of the increase in OPR is the country’s fourth consecutive interest rate hike since May this year, a move that the central bank’s monetary policy committee explained as a further adjustment to monetary easing.

The central bank said the committee also decided at its last meeting of the year that the corridor-top and -bottom limits of the OPR would be raised accordingly to 3% and 2.5%, respectively.

SME Association of Malaysia president Ding Hong Sing said the latest interest rate hike could trigger another wave of inflation next year, and that the hike will definitely have an impact on the operating costs of SMEs.

To add to the pressure, he said, businesses are in no position to raise prices of their goods or services again at short notice.

“That’s because many companies had already adjusted their prices two or three times since the Russia-Ukraine war first broke out.”

Ding however said inflation could kick in after January 1. 

He said the interest rate hike is just piling on problems for SMEs that are still recovering from the ravages of the pandemic, shortage of foreign workers, and now uncertainties brought by a general election.

“It will take some time for confidence to return after the election, and on top of all these uncertainties, the central bank just keeps on raising interest rates. 

“That just adds to the burden of the people.

“In short, there’s no winner with the hike.” 

Economist Phua Lee Kerk however said people need to understand the reality as BNM does not have much of a choice, as there will be repercussions whether interest rates are raised or not.

“The impact of not raising it (OPR) would probably be greater because if it’s not raised, the ringgit would continue to depreciate against the major currencies.

That, Phua said, would definitely trigger inflation “because a lot of our food needs to be imported”. 

“Simply put, if the United States raises interest rates and we don’t, it creates a gap in interest rates and our currency will continue to weaken.” 

He said inflationary pressure would not just be on domestic consumption, but also on the cost of imported raw materials. 

“A rate rise will have a negative impact on the economy as a whole.”

What Phua hopes is for the country not to enter a recession as business slows. – November 8, 2022.