Bank Negara Malaysia's Monetary Policy Committee (MPC) has made a surprise move to raise the Overnight Policy Rate (OPR) by 25 basis points to 2.00%. The ceiling and floor rates for the OPR's corridor have been raised to 2.25% and 1.75%, respectively.

The Market Has To Adjust To The Policy To Be Conducive For Investors 

SHAREDA President, Datuk Chua Soon Ping

Datuk Chua Soon Ping, SHAREDA President expressed, “After the US Federal Reserve raised their lending rate by 50 basis points, the US has attracted more investment. KLSE is badly affected and Bank Negara is following suit by raising the benchmark as well. Within two weeks, banks will have to adjust their rates to the equivalent amount.”

“For example, if your housing loan is parked at a margin rate of 2.80 then it may increase to 3% and thereby increase your payment instalments to cover your mortgage,” he explained.

On affordability, Datuk Chua added that “Minimum wages have increased from RM1200 to RM1500. Although it may deter the recovery of SME entrepreneurs, at the same time the inflationary pressures push the affordability of those blue collar workers.”

“It is timely for the government to implement social housing or affordable housing for B40 which echoes well for the “one family one house” initiative by the Prime Minister.”

He added that the market will adjust to the policy should it be conducive for the investors to return. The state government should also take more initiative to attract foreign investment so it would quantum leap for the recovery of the state economy.

Economy Still On A Rocky Path Towards Recovery

Earlier this year, kopiandproperty.com founder, Charles Tan anticipated that Bank Negara Malaysia would only adjust the rates in the second half of 2022. Thus, this latest decision caught him by surprise.

kopiandproperty Founder, Charles Tan

“I think It’s not an easy decision for Bank Negara Malaysia. Inflation has started to creep up in Malaysia while in many countries, inflation has reached alarming levels. Perhaps one reason why our inflation numbers remain low in comparison is also because of the petrol subsidy. Many central banks have already increased their rates to counter the inflation numbers. “

“At the same time, our economy is still on a rocky path towards recovery. If rates are up too much, it may discourage investment and thus may derail the fragile growth. I think this was the reason why Bank Negara has opted for 25 basis points and I expect most probably another small adjustment in the next Monetary Policy Committee meeting unless the core inflation remains under control,” Charles added.

Expected To Hover Between 2.2% To 3% This Year

Property and mortgage expert, Miichael Yeoh also shared his prediction in November 2020 that the Overnight Policy Rate (OPR) would increase towards the end of 2021 by around 25 basis points to 2%. 

“Well I am right at 25 basis points but what caught me by surprise is that it increased sooner. We have been enjoying a reduced interest rate since January 2020. Since then it has reduced three more times to 1.75% which is a historic low. This has helped many loan borrowers in the last two years coupled with the moratorium policy,”

Property Expert, Miichael Yeoh

Miichael believes 2% is still at its lowest and banks will start adjusting their interest rate. The increase in the OPR rate is due to inflationary pressure. BNM has no choice but to increase the interest rate and inflation is at 2.2 percent as of March 2022. It was below zero percent in the first quarter of 2021 but it slowly increased during the pandemic crisis. He expresses his expectations for it to hover between 2.2% to 3% this year.

“Now, you might be asking, will it stay at 2% or increase further? My prediction is based on the economic outlook which I think will increase another round this year by around 25 basis points or 0.25%. The OPR will gradually increase. Be ready for that,” said Miichael.

Recent statistics imply that the Malaysian economy is growing more steadily, owing to stronger domestic demand and continued export development. A reduced unemployment rate, increased labour participation, and improved income prospects all help to boost the labour market. Economic activity would be boosted by the transition into the endemic phase from 1 April 2022, in line with the further reduction of limitations and the reopening of international borders.

With commodity price increases, global supply chain difficulties, the financial market instability will continue to have an impact on the global growth outlook.