Increasing Interest Rate A Good Omen For Growth Say Economists

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An economist says he does not expect Malaysia’s inflation rate to see a steep rise.PETALING JAYA: Economists view Bank Negara Malaysia (BNM)’s decision to raise the key overnight policy rate (OPR) by 25 basis points to 2.0% as an optimistic sign for the country’s economic growth.
Socio Economic Research Centre Malaysia (SERC) executive director Lee Heng Guie said the market had not expected a hike in the OPR before the second half of the year.
“Given that the first-quarter gross domestic product results will be released on Friday, the rate hike might telegraph a better-than-expected growth for the quarter,” he told FMT.
He does not expect the inflation rate to see a steep rise, as in the US, and believes the interest rate movement will be spaced out to ensure economic recovery.
Similarly, Bank Islam Malaysia Bhd’s chief economist Afzanizam Abdul Rashid sees the statement from BNM’s monetary policy committee as being indicative that it is quite comfortable with the prevailing economic growth trajectory.
“Although they continue to acknowledge the downside risks, the excessive monetary policy accommodation needs to be removed as otherwise it can cause other problems such as an overheating economy, excessive risk-taking as well as a high level of indebtedness among households and businesses,” he said.
Afzanizam believes the door for more OPR hikes in the near term is open.
“Perhaps, another 25 basis points hike is quite likely as BNM would need to be extremely careful in removing the monetary policy accommodation.”
In a statement, the central bank said it decided to begin reducing the degree of monetary accommodation in a measured and gradual manner to ensure the monetary policy remained accommodative so as to support sustainable economic growth in an environment of price stability.
The rate movement lifted Malaysia’s OPR from a record low of 1.75% following a cumulative 125 basis points cut placed during the Covid-19 crisis to provide support to the economy. - FMT

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