FORMER finance minister Lim Guan Eng today slammed Bank Negara’s decision to hike the overnight policy rate (OPR) to 3%, saying it would hurt borrowers and spook investors.

He said the hike will be mostly felt most by borrowers with vehicle, home, and credit card loans.

Lim warned that small and medium enterprises (SMEs) will also face a heavier financial burden.

“Apart from borrowers, the economy may also suffer with a higher interest rate affecting economic growth already affected by global uncertainties of a US-led global recession,” said the former finance minister in a statement.

He said that the S&P Global Market Intelligence showed the seasonally adjusted Malaysia Manufacturing Purchasing Managers’ Index (PMI) remained below the 50-point mark separating monthly expansion and contraction, with the index unchanged at 48.8 in April.

“This is a warning signal of a subdued Malaysian manufacturing sector at the start of the second quarter of this year amid a challenging economic environment.

“The surprise hike in the OPR by Bank Negara definitely does not help to boost business confidence.”

On May 3, Bank Negara Bank in a surprise move raised the OPR by 25 basis points in the first hike since November.

A Reuters poll of 25 economists had largely expected Bank Negara to hold the OPR at 2.75% for a third straight meeting.

Lim, who is Bagan MP, also dismissed the “ringgit strengthening” rationale offered by defenders of the hike.

“In fewer than 10 days, the ringgit has depreciated from RM4.45 to the US dollar (on May 3) to RM 4.47 today. 

“Clearly the value of the ringgit is not determined by sound economic fundamentals, solid economic performance, growth rates or OPR set by BNM but more a function of interest rate expectations of the US Federal Reserve.

“This is clearly demonstrated during the two interest rate pauses by Bank Negara this year, which did not jeopardise the value of the ringgit but instead appreciated to RM4.24 to the US dollar on 28 January 2023. 

“The ringgit can still strengthen to the January levels when interest rate hikes by the Federal Reserve hits a pause, thereby allowing the performance of key fundamentals of the Malaysian economy to come into play.”

He said inflation fell from 3.7% in February to 3.4% in March.

“The March inflation rate is a 34-month low, making the OPR hike unexpected. This sentiment is reflected by most economists,” he said.

Days before the hike, Lim had urged Bank Negara to maintain the 2.75% rate as any increase would increase workers’ borrowing costs and reduce their disposable income. – May 12, 2023.