PETALING JAYA: A higher overnight policy rate (OPR) influences people into becoming more prudent with their spending and encourages them to save more, says Prime Minister Anwar Ibrahim.
Anwar, who is also finance minister, said there were some who misunderstood the OPR hike, thinking it would cause inflation to spike.
“When demand for goods and services in the economy is too high compared to the supply, prices tend to rise.
“A higher OPR would help adjust demand to a level more equivalent to supply, thereby helping ease inflationary pressures on the prices of goods,” he said in a written parliamentary reply.
He maintained that Bank Negara Malaysia’s (BNM) decision to raise the OPR was made “very carefully”, acknowledging the effects it would have on monthly loan repayments.
Anwar said failing to control inflation would lead to greater negative effects on the nation, especially low-income earners, compared to the effects of raising the OPR in a staggered and controlled manner.
“The OPR hike in May is not aimed at stunting efforts for economic recovery but to ensure that Malaysia’s economy remains healthy and grows sustainably, while controlling inflation for the long term.”
On May 3, BNM raised the OPR by 25bps from 2.75% to 3%.
It had earlier paused its rate hike cycle in January and March after raising it by 100bps or 1% last year as inflation surged following the Covid-19 pandemic and in the aftermath of the Russia-Ukraine conflict.
Earlier today, former finance minister Lim Guan Eng criticised the central bank over the OPR hike, saying that only banks had benefitted from it.
Lim, the DAP chairman, pointed out that headline and core inflation had dropped to a 34-month low of 3.4% and 3.8%, respectively, in March though BNM did not raise the OPR in January and March.
