LAST week, Bank Negara Malaysia raised the overnight policy rate (OPR) by 25 basis points (0.25%), from 1.75% to 2.00%, the first change since June 2020.

Given that the OPR was slashed four times in two-month intervals from January to July 2020, and the “recovery” position taken by the Malaysian government, it is expected to further rise, by 75 or even 100 basis points.

OPR directly affects the lending rates between financial institutions, and lowering lending rates can help boost currency value, and make imports cheaper.

The inverse is higher cost of internal lending, meaning loans will cost more. Importing countries like Singapore, maintains theirs at around 1.1%, while large exporters would want to keep theirs higher, such as Indonesia’s 6.5% (Indonesia and Singapore also use other methods of internal lending rates, like SORA, SIBOR in Singapore and IndONIA or JIBOR in Indonesia, which help stabilise lending by using averages or foreign currency).

In theory, raising the OPR should help stabilise the economy by reducing inflation.  

However, the downside is, as many businesses have borrowed heavily to sustain losses during the lockdown, they are only now able to recover some of their losses, while having to service their loans. 

Many homeowners and motorists have refinanced their assets to get by, especially those who lost jobs during the pandemic. 

In short, people and businesses are only now starting to rebuild, with the recent Raya weekend being the first real business opportunity to boom in more than two years. 

Even then, shortage of labour, outbreaks of other diseases, like hand-foot-and-mouth disease (HFMD), rabies and dengue threaten some businesses, particularly those dealing with children, animals or the outdoors. 

In short, we are hardly out of the woods. 

OPR rates are only a very small part of the solution to strengthen our economy. We need to attract valuable foreign investment, to balance currency outflow with investments and jobs.

The more people invest in you, the less people would want to, or are able to, manipulate your market. 

Malaysia has lost investments to Indonesia and Vietnam in recent years and it is not hard to see why: Indonesia’s electric vehicle (EV) roadmap, for example, included building an entire ecosystem around it.

Jakarta set a goal of producing 600,000 electric cars and 2.5 million motorcycles by 2030, attracting investments in hybrid and electric vehicles by Hyundai, Toyota, Suzuki, Honda and Mitsubishi.  

Hyundai’s West Java plant alone produces 200,000 electric cars annually. 

Leveraging on their nickel production, both the world’s largest (Amperex) and second largest (LG) EV car battery producers have invested in plants in Indonesia.  

Amperex supplies Tesla, which is now, in turn, in talks with Indonesia to open up plants and even a SpaceX launch facility there.

It was a holistic strategy, including policy, financing, infrastructure, building the requisite supporting industries.  

These are strategies Malaysia once led Asean in the semiconductor industry, palm oil production, rubber processing and even energy production. 

It is important to protect the economically vulnerable, while executing such strategies too.

While the B40 has been given emphasis, it is a growing class of people with some pushing for the category to be reclassified as B60.

At least 60% of the population is likely to face issues with loan repayments, and with the moratorium already lapsed, the government should look at alternatives. 

It is pointless to make policy adjustments to increase market confidence but buckle at implementation only to shoot ourselves in the foot in the long run. – May 18, 2022.

* Emmanuel Joseph firmly believes that Klang is the best place on Earth, and that motivated people can do far more good than any leader with motive.