A SHARP decline in the fiscal deficit rate will adversely affect the economy, especially in terms of development projects for education, healthcare and rural infrastructure, Prime Minister Anwar Ibrahim said. 

Anwar, who is also finance minister, said the deficit should instead be gradually reduced to an acceptable level.

“The economic policy and Bank Negara Malaysia’s insight will also determine the ringgit’s strength, but we also have to consider that a sharp rise in the overnight policy rate will have a negative impact on businesses,” he said in the Dewan Rakyat today.

This was in reply to Dr Radzi Jidin’s (Putrajaya-PN) query on the effect of the ringgit’s depreciation on the economy and steps taken to strengthen the local currency.

Anwar said BNM has been cautious about raising interest rates.

He said the lower value of th ringgit was due to the strengthening of the US dollar.

“Since December 31, 2022, the ringgit has eased 3.8% against the US dollar. The Japanese yen fell more than 6% to the greenback, while the Australian dollar, South Korean won and Chinese yuan dropped about 3%,” he said.

He said BNM has raised the key interest rate by 125 basis points (bps) since January 2022, compared to a 380bps hike in Singapore, 225bps in Indonesia, and 500bps in the United States.

“Singapore has raised (its rates) high so the country’s currency has been firmer,” he said.

“Under the current unity government, we have only raised the OPR once,” he noted.

Anwar advised the central bank to consider not just the monetary issue but also the fiscal policy and investor confidence when deciding whether to raise the OPR.

“What is happening now is, as seen from investor confidence through investments received for the first quarter of 2023, the country’s economic growth has provided assurance although the ringgit’s value is still tied to the US dollar’s strength.” – Bernama, June 6, 2023.