Bank Negara Malaysia (BNM) is likely to keep its overnight policy rate (OPR) at 1.75% at the upcoming Monetary Policy Committee (MPC) meeting tomorrow, an economist told Business Today.
Ambank group chief economist Dr Anthony Dass said that the current level of inflation was manageable and there was little reason to raise interest rates as the economy was only now reeling from the pandemic.
“The spate inflation that we are experiencing is cost-push inflation and any hike in interest rates would only be a dampener as it would not help in bringing prices down and aid to the economic recovery,” he said.
Anthony Dass said that there was a school of taught that suggests that increasing interest rates would reduce interest rate differentials but adds that this would add little to strengthen the ringgit as that is the reason the US dollar was strengthening on its own steam.
He said that with a moratorium on loans ending, increasing interest rates now would only exacerbate the businessmen’s financial woes and dampen economic recovery.
At tomorrow’s MPC meeting, Anthony Dass believes that it would adopt a cautious policy stance but adds that in the next meeting in July, it may tilt towards tightening if the economic recovery gathers momentum leading to a demand-driven inflationary trend.
On May 4, the Federal Reserve increased its benchmark interest rate by half a percentage point, in line with market expectations.
In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month. The rate move is the largest since 2000 and is in response to burgeoning inflation pressures.
