PETALING JAYA, July 11 — A temporary slump in car sales and an increase in loan repayments are expected in the wake of the new 3.25 per cent interest rate announced by Bank Negara Malaysia yesterday.

Federation of Motor and Credit Companies Association of Malaysia president Datuk Tony Khor predicted the higher rate would affect car sales, especially within the first three months of introduction.

“The new rate will cause the buying ‘mood’ to be affected,” he said.

“Consumers will feel like the increase is indicative of the economy, and will be more concerned when making purchasing decisions.”

However, he said the effect would be more “physchological than physical”.

“I foresee the increase to be minimal, especially because compared with other countries, our interest rate is still moderate,” Khor said.

“Consumers will actually only need to pay slightly more in terms of monthly instalments, but they might still hold off the purchase because of feelings of uncertainty.”

A car dealer from Johor, Donald Yoong, said the duration of the slump would depend heavily on the magnitude of the increase in loan rates.

Yoong, who specialises in selling used cars, said if the sales of new cars dropped, the value of used cars would be affected negatively.

He said he also expected dealers to lower new car prices to offset the cost of the new interest rate and encourage buyers to make purchases.

Insurance agency manager Gary Chan, 32, said the rise would have a direct effect on housing loans. 

“People are made to pay more for what they own,” he said.

He said the country might see the gap of wealth inequality widen. 

“The poor will suffer because they are burdened with increased loans. The rich will earn from selling property,” Chan added. 

Financial planner, David Diong, 22, said: “This makes it harder for them to keep up with the high cost of living. 

“Properties are expensive in Malaysia. With the increase, it makes it harder for people to purchase homes,” he said. 

He added that newly built properties may go unsold and, indirectly, the price of goods would go up. 

“Manufacturers are burdened by the interest rate and the Goods and Services Tax next year.

“They tend to transfer the cost to consumers because they would not want to absorb the cost,” he added. 

“Especially investors, they have to let go of some of their properties because they cannot afford to pay back. 

Federation of Malaysian Consumers Associations president Datuk Paul Selvaraj said that although consumers would be affected, the bigger economic impact was more important.

He said the move was the central bank’s effort to tighten up where necessary.

“As household debts are high, this is one way of regulating it,” he said, adding that Malaysia had one of the highest rates of household debt in the world.