Guan Eng claims BNM’s rate hike ‘premature,’ could affect Malaysia’s economic growth

Malay Mail
Malay Mail

KUALA LUMPUR, May 24 — Bank Negara Malaysia’s (BNM) recent overnight policy rate (OPR) hike that pushed up interest rates by local banks was “premature”, DAP national chairman Lim Guan Eng said today.

Lim also suggested that the 25-basis point increase to 3.00 per cent on May 3 could affect Malaysia’s economic growth.

“Bank Negara Malaysia or BNM’s premature policy rate normalisation has not helped to stem the depreciation of the ringgit to the US dollar but may harm borrowing costs, hinder business expansion and hamper sustainable economic growth,” the Bagan MP claimed in a statement today.

Lim said the ringgit’s value against the US dollar has dropped from RM4.45 on May 3 to RM4.58 today.

In its frequently-asked-questions (FAQ) section on OPR changes on its website BNM said OPR changes help foster the right conditions for sustainable economic growth with price stability and could then help improve investors’ confidence and support the ringgit exchange rate over time, but also said there are many other factors that could influence the currency exchange rate.

Noting that BNM’s main argument for the latest increase on the OPR was the need to help control core inflation in Malaysia and to restore OPR levels following the economy’s recovery from the Covid-19 pandemic, Lim however questioned this argument.

“There is genuine concern whether the latest OPR hike will affect sustainable economic growth, making it difficult for Malaysia to repeat the encouraging 5.6 per cent first quarter GDP growth in the second quarter of 2023,” he said.

Citing S&P Global Market Intelligence where Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) remaining unchanged at 48.8 in April 2023 or below the 50-point mark separating monthly expansion and contraction, Lim described this as a “warning signal of a subdued Malaysian manufacturing sector” at the start of the second quarter of this year.

Lim also said Malaysia’s trade growth in April 2023 had fallen 14.5 per cent as compared to last year, or to RM198 billion.

Lim questioned BNM’s stated aim of using the OPR to control inflation in Malaysia when it has gone down now, saying that the central bank did not make any increases to the OPR in January and March this year when the inflation rate was higher.

He also said inflation levels in March had still fallen even without OPR hikes in January and March.

Lim claimed that the OPR hikes would benefit no one except the banking sector, which could have higher profits.

“Analysts at Hong Leong Investment Bank Bhd estimated that over a one-year forward earnings, a 0.25 per cent rate hike would nudge up the banks’ net profit by 3.7 per cent or slightly more than RM1 billion to RM30.07 billion from RM28.99 billion forecasted earlier. Have banks not earned enough?” he asked.

In its FAQ section on its website, BNM had among other things said higher OPR rates could help bring down inflation, and that it was important to act early by hiking the OPR instead of waiting until high inflation goes out of control and where the OPR rates would have to be hiked up faster and higher.

On its official Twitter account, BNM on May 18 shared a video clip of BNM governor Tan Sri Nor Shamsiah Mohd Yunus’s May 12 explanation that banks’ income from interest payments would not necessarily go up if there were more fixed rate loans, stressing that the central bank’s policies are not to make sure that banks are profitable but to ensure the banking industry is sound.