BANK Negara Malaysia (BNM) has been urged not to further increase its overnight policy rate (OPR) as past efforts had little effect in quelling growing inflationary pressures.

In a statement, former finance minister Lim Guan Eng said raising the OPR would instead adversely affect the people’s socio-economic wellbeing, the domestic investment climate and the country’s post-pandemic economic growth facing pressure from rising prices.

The Bagan MP said increasing interest rates would unnecessarily add on to the costs of individual loans on houses and vehicles, business costs, cash flows of traders and cost of funds of investors.

BNM and Putrajaya, he said, should be helping businesses not harming businesses, especially small, medium enterprises (SMEs) struggling to survive and revive their business in the difficult post-Covid economic environment.

The central bank is expected to announce its third consecutive 25 basis point interest rate hike, from 2.25% to 2.5%, on Thursday to stem soaring prices and inflation coupled with arresting the decline of a rapidly depreciating ringgit.

Lim said BNM’s interest rates hikes in the past had no effect on rising prices because “the soaring prices and inflation are not caused by excessive demand – demand pull inflation”.

“Hiking the OPR would not reduce demand.

“Global inflation is cost-push, caused by supply chain disruptions as a result of sanctions imposed following the Ukraine war and the Covid-19 lockdowns in China,” Lim said.

He also said increasing the OPR would also “be a slap in the face by Bank Negara on Annuar Musa”, the chairman of the Special Task Force on Jihad Against Inflation, who claimed that inflation and soaring food prices is slowly under control.

“Neither has increasing the OPR made any positive impact on supporting the ringgit in the currency market.”

The ringgit, approaching a 24-year low of RM4.50 to the US dollar, dipped to a historic low by breaching RM3.25 to the Singapore dollar.

The Indonesian rupiah has at the same time strengthened by 3% this year against the ringgit.

“If the purpose of the expected 25 basis points hike is to shore up the value of the ringgit against the US dollar, this is an exercise in futility as BNM can never compete against the more aggressive interest rate hikes by the US Federal Reserve,” Lim said.

Reuters reported that although Malaysia’s inflation rose to 4.4% in July, well above the target range of 2-3%, it is relatively moderate compared with other Southeast Asian countries.

BNM has raised rates by a modest 50 basis points since May to 2.25%.

If the central bank raised the OPR to 2.50% at its Thursday meeting, it would be the first time since 2010 the central bank raised rates three times in a row. – September 6, 2022.